Wait for ‘right time’ to invest in gold: Analysts

While gold prices may zoom further and might even cross Rs 17,000 level in the short term,there are significant downside risks from the current level.

Written by Agencies | New Delhi | Published: February 23, 2009 4:24:53 pm

Surging gold prices to record highs of over Rs 16,000 per ten gram may have made the existing investors wealthier,but the analysts do not consider it the right time for the new investors to enter this market — both directly or through exchange traded funds.

While gold prices may zoom further and might even cross Rs 17,000 level in the short term,there are significant downside risks from the current levels,especially if the equity markets start recovering,the experts believe,as they attribute the recent rally mostly to the investors’ continued flight away from the stocks.

Gold prices,which were on an upward spiral for the past two quarters,breached its all-time high of over Rs 16,000 per 10 gram in the futures trade,while gold ETFs are also giving better returns with an average of about 15 per cent return quarterly.

Analysts believe the marriage season has boosted the demand for gold which has pushed the prices to record levels and investors should await a downtrend to invest in Gold ETFs.

“With the onset of marriage season,gold has become expensive asset. Like all other commodities it is likely to undergo correction and hence an investment is advisable at this time,” Taurus Mutual Fund Managing Director R K Gupta said.

Gold ETFs are a type of mutual fund schemes under which investors can buy and sell gold on the exchange. The trading prices on the ETF is the average market price of one gram gold. Analysts believe that the investments in gold ETFs should be for long term to avoid short term capital gain tax.

“Investors should book profit now and wait for ETF prices to come down to Rs 1,400-1,450 levels. There is scope for correction as the yellow metal is highly overbought at the moment,” SMC Global VP Rajesh Jain said.

As uncertainty trails everywhere,investors turned their focus on gold as the precious metal came as a safe and secured investment bet in times of recession and traders have increased their exposure in the precious metal following melting stock and forex markets.

At present there are five Gold ETFs — Kotak Gold,Gold Share,Gold Bees,Reliance Gold and Quantum Gold– listed on the National Stock Exchange.

Analysts believe that Gold ETFs have emerged as the top investment avenue in recent times when stock market returns dropped drastically,while physical gold prices are touching the roof in domestic as well as global markets.

According to an analysis of the returns provided by Gold ETFs,investors have reaped on an average of 15 per cent in the past three months,while in the past six months the returns have increased by over 20 per cent.

“There is no counter party risk involved in the Gold ETF investment and people are taking it is as a hedge against risk,” Ashika Stock Brokers’ Research Head Paras Bothra said.

On Friday,KotakGold ETF settled at Rs 1,521.36,UTI Mutual Fund’s GoldShare ended at Rs 1532.44,Benchmark MFs GoldBees at Rs 1,546.53 on the National Stock Exchange.

Besides,Reliance MF’s RelGold closed at Rs 1,490.54 and Quantum Gold at Rs 761 on NSE.

“People are understanding that the economic problem is deep and intrinsic value is going to deplete. Hence,it has emerged as the only favoured asset class giving positive returns,” Bothra added.

Further,physical gold prices have shot up to record highs of Rs 15,800 per 10 gms last week,while gold futures breached the Rs 16,000-mark per 10 gm on continued buying on speculations that the global recession would deepen further.

The metal,which had been on a record-setting spree for the last one week,spurted to an all-time high of Rs 16,349 on Friday in futures trade,by adding 2.55 per cent on the Multi Commodity Exchange.

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