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Has the time come to revisit your gold investment?

Last updated on: April 19, 2013 09:47 IST

Has the time come to revisit your gold investment?

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For the last twelve years gold had shown a massive build on interest.

The bull cycle was extended so much that it looked ballooning in 2013.

The corrective wave has approached the bullions this year and it is so hard for many to believe that gold can correct so steeply also.

Indian gold prices have slipped below Rs 30,000 and still counting on the lower side.

The world over bearish bets on gold has pressed the need to think that whether right time has come to revisit gold in your kitty.

Here we have come up with six points which shows that yes the time has come to book some profits in gold investments!

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Photographs: Reuters
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Investment doesn't disallow profits

The first important thing that an investor must understand is that in no way investments disallows profits.

That means that if you had invested in gold you can also book profits provided you want to book it.

Some investors are confused about the timing of booking profits and when they miss the train they become frustrated.

The approach should be to chalk out what kind of returns you expected from your gold investment.

If the returns have been achieved book profits and sit on cash.

Wait for new investment alternatives or if you are die hard gold fan wait for better levels to emerge before you can reenter the markets.

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Image: A customer selects one-carat gold bangles during an exhibition in Jammu.
Photographs: Amit Gupta/Files/Reuters
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Confidence in risk takers

Ever since there are calls that the Federal Reserve will end its famous quantitative easing program risk bearers look more charged at the state of US economy.

The US economy has entered a recovering mode and this has lend sharp interest favoring local currency Dollar and a move away from traditional safe haven investments like Gold.

US equity markets are getting better indicating that money is now being poured into riskier asset classes and away from bullions that had an extended rally over a decade.

The confidence of risk takers means that Gold can see some more days of grim and prices can correct further down.

In case, you are an investor that is looking for the right time to exit this metal, it is now.

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Image: A shopkeeper displays gold jewellery inside his showroom.
Photographs: Amit Gupta/Files/Reuters

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Indian gold demand dips

Indian gold demand has dipped considerably lower last year and the measures by government to bring down gold imports are expected to affect the metal further.

Indian gold demand is important not only from a domestic point of view but also the international angle as the country is the biggest consumer of gold in the world.

In a bid to control Current Account Deficit, Indian government raised the import duty on Gold to 6 per cent.

Indian gold demand declined by 12 per cent to 864.2 tonnes in 2012.

The demand is expected to remain in this range in the coming year as well on the back of strong measures by the government.

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Image: Gold ornaments displayed in a jewellery store.
Photographs: Reuters
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Consumer end demand is missing

The central banks of Russia and South Korea are still buying gold and improving their reserves, but the fact is that consumer centric demand in gold is missing.

Higher prices have been the sole driver for lower demand of gold by consumers.

The Chinese Central Bank has already indicated that it is in no mood to increase its gold reserves further.

In such scenario, buying from Russia and South Korea doesn't seem enough to mitigate the loss of demand from other segments.

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Image: A worker displays gold jewellery at a shop in Mumbai.
Photographs: Punit Paranjpe/Files/Reuters

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Pricing of gold

One reason given at the time of gold rally was its undervaluation.

With the passage of multi years of rally on a trout this assumption looks jaded.

Compared to other metals like Copper, Crude Oil Gold looks a bit overvalued.

Demand and supply determine the value of a particular commodity and if the demand is missing, gold is expected to come down to meet the aspirations of the buyer's prices.

The purchasing power of consumers and prices of gold got mismatched after it crossed 32k levels in Indian markets and almost $ 1800 per troy ounce levels in International spot markets.

The correction in gold prices is necessary to decrease the gap between the two.

Therefore, reassessment of a portfolio is not a bad idea for you.

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Image: Customers look at gold bangles inside a jewellery shop in Hyderabad.
Photographs: Krishnendu Halder/Files/Reuters

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Exchange Traded ETFs Selling

An investor should always use his rationale in deciding on his portfolio but that doesn't mean that one can ignore the trend going on in the markets.

The trend is that heavy outflows of gold are going on by gold ETFs.

The outflows are a sign that the big funds are booking profits in gold as they think that it is the right time to become cash rich.

World billionaires like George Soros recently slashed its holdings of gold.

Investors should not blindly follow the decisions made by others but fund selling and trend should not be ignored.

Selling in ETFs is due to the confidence in US economic recovery that once led investments pour into gold at the time of the housing crisis.

It is, therefore, essential that you recheck the objective of your investment in gold.

If your objective was to earn decent returns this is the time to churn money.

If it was to keep adding gold in your assortment do that after some time as the prices can move further down from here.

If you were a long term investor worried with what is happening in the world, stay cautious and start following the trend.


Photographs: Heinz-Peter Bader/Reuters

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