Don’t Get Swayed, Keep Gold in Right Mix to Bal­ance Port­fo­lio

With un­cer­tainty over gold price move­ment, ex­perts ad­vise in­vestors to fo­cus on as­set al­lo­ca­tion strat­egy in­stead of mar­ket con­di­tions to take a call on the pre­cious metal, says Preeti Kulka­rni

The Economic Times - - Markets & Finance -

Is gold go­ing to tum­ble fur­ther? Many gold in­vestors are won­der­ing about the fu­ture prospects of the yel­low metal, af­ter it lost ground af­ter the Re­serve Bank of In­dia (RBI) eased im­port norms last week. Some in­vestors are al­most con­vinced that gold will lose more glit­ter in com­ing days, as the new govern­ment is ex­pected to re­duce Cus­toms duty on gold and the ru­pee will gain fur­ther on ro­bust in­flows. Many an­a­lysts also ex­pect the new govern­ment to ease im­port re­stric­tions fur­ther. Since the re­stric­tions were tem­po­rary, a grad­ual re­lax­ation and con­se­quent price drop are ex­pected, they say.

“There is an ex­pec­ta­tion in the mar­ket that with the new govern­ment, there would be a grad­ual re­lax­ation in re­stric­tions and levies. There could be a fall in do­mes­tic prices to that ex­tent, given other things re­main­ing same. The re­cent RBI no­ti­fi­ca­tion was seen as a step in this di­rec­tion,” says Chi­rag Me­hta, fund man­ager, com­modi­ties, Quan­tum Mu­tual Fund. In the in­ter­na­tional mar­ket, too, ex­perts do not see any trig­gers for a rise in gold prices.

“Glob­ally, prices will re­main soft, though the fall is un­likely to be sharp. In ru­pee terms, gold will slide fur­ther as the new govern­ment eases im­port re­stric­tions im- posed last year,” says Raghven­dra Nath, man­ag­ing di­rec­tor, Lad­derup Wealth Man­age­ment. The yel­low metal dropped to .` 27,850 per ten gram on Fri­day. On Mon­day, it rose marginally to .` 27,870.

Sell, Hold or Buy?

Though gold gained 4.5% last year un­til Fe­bru­ary, it has been slid­ing since then, and is no more con­sid­ered a must in the port­fo­lio of an aver­age in­vestor. How­ever, many in­vestors would be con­tin­u­ing with their al­lo­ca­tion to gold and some

such de­ci­sions should be based on your goals and in­vest­ment hori­zon

can con­sider of­fload­ing sur­plus hold­ings

strat­egy, aligned to your fi­nan­cial goals, should be the de­ter­mi­nant

An al­lo­ca­tion of 5-10%

to­wards gold in a re­tail in­vestor’s port­fo­lio is rec­om­mended still have a size­able chunk of gold in their port­fo­lio. Gold was on ev­ery­body’s in­vest­ment list un­til a few years ago when the pre­cious metal had given re­turns of over 15% in 2008 and 2010. “Around four to five years ago, many re­tail in­vestors in­vested heav­ily in gold, thanks to the frenzy for the pre­cious metal then. They typ­i­cally tend to chase the as­set class that is do­ing well. Many also as­sumed that gold prices can never fall, de­spite ev­i­dence to the con­trary. In the last two years, as re­turns turned lack­lus­tre, they de­vel- oped ap­a­thy to­wards gold,” says cer­ti­fied fi­nan­cial plan­ner Suresh Sadagopan, founder, Lad­der7 Fi­nan­cial Ad­vi­sories. He adds that in­vestors should stop get­ting swayed by the mar­ket move­ments and stick to their as­set al­lo­ca­tion mix. Fi­nan­cial ad­vi­sors want in­vestors to fo­cus on their as­set al­lo­ca­tion strat­egy than the mar­ket con­di­tions to take a call on gold. “It's traders who have to take calls on the ba­sis of short-term move­ments. The prices were ex­pected to fall in any case,” says Kishore Narne, as­so­ciate di­rec­tor, Motilal Oswal Fi­nan­cial Ser­vices. Narne continues to be­lieve that a re­tail in­vestor should have an al­lo­ca­tion of 10-15% to­wards gold, as it can act as cush­ion against eco­nomic tur­bu­lence. He asks in­vestors to wait till the prices go down to .` 24,000-24,500 and start in­vest­ing. Sadagopan says in­vestors should base their de­ci­sion to sell gold on their as­set al­lo­ca­tion goals. How­ever, this would mean set­tling for lower prof­its or even stom­ach­ing some losses. If you have in­vested in gold to di­ver­sify your port­fo­lio and the al­lo­ca­tion is within the limit, you don’t have to sell your hold­ings now, say ex­perts.

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