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Is this good time to invest in gold?

September 02, 2014 17:08 IST

A common dilemma almost every investor faces at some point or the other is the timing of his or her investing in the precious yellow metal. This is because, ‘buy low, sell high’ remains the fundamental mantra of all investments including gold.

With gold acting as both an investment as well as an insurance product against falling equity prices countering any massive lows and recession periods, investment in gold is always given due thought by each investor. Gold prices have eased off in recent months after the formation of a new government bringing in positive sentiment back to the stock market. With investors who had parked their funds in gold pre election returning to the equity markets, gold prices have cooled off substantially. So does that make it a right time to invest in gold?

With gold import restrictions still in place, gold prices are unlikely to fall to a great extent. However the government has ensured that there is a positive market sentiment with relaxation of gold import norms.

Good time to buy physical gold jewellery:

With prices of gold declining steadily, most experts believe that this could be the right window of opportunity to buy physical gold. For those seeking to buy gold jewellery for their personal use or for marriage, this is a good time to buy gold. However it is not the right time to exchange old gold jewellery as opting for fresh purchase makes more sense.

Change in gold import duty unlikely:

Amid active speculation that the finance minster would announce a reduction in import duty on gold norms set by the previous government in reality import duties were left unchanged. The finance ministry has made it clear that it has no proposal to lower customs duty on gold from the current 10 per cent unless the current account deficit lowers substantially. The downside of such a decision is that gold would continue to enjoy a premium asset pedestal in the country making it costlier than various international markets. The high import duty in gold has also increased the number of cases for gold smuggling in the country.

Gold ETFs and long term capital gain tax:

There were high expectations from the finance minister Arun Jaitley to reduce gold import duty but an increase in long term capital gain tax was the last thing on the mind of investors. The increase in capital gain tax on non equity mutual funds from the current 10% to 20% from July 2014 is likely to directly impact gold exchange traded funds and other gold saving funds.

RBI eases import norms:

The good news for many investors as well as retail buyers is that gold prices are likely to cool off in the near future even further as the government has announced relaxation of import norms. The Reserve Bank of India has allowed certain trading houses to import gold apart from permitted banks under a 20:80 division rule. Under the new guidelines, the importer will have to make sure that least one-fifth (20%) of every lot of imported gold is exclusively made available for the exports while the remaining can be used for the domestic market. The new norms have made gold import companies hopeful that the government is likely to provide a positive impetus as current account deficit declines even further.

Look to invest long term:

Gold as a fundamental investment product has given good returns for long term players. The lack of a directional policy in import duty would mean gold prices are going to remain in a suspended animation state whereby any sudden rise or decline remains unlikely.

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