Sunday, August 7, 2011

Gold, silver emerge best bets in last 1 year

MUMBAI: Last year, if you had adhered to the age-old advice to invest in precious metals when the chips are down for the global economy, you would be rolling in the moolah today. Investments in gold and silver have yielded the best returns during the current period of uncertainty, which began in January 2010 with economic troubles arising out of the ballooning debt in the European Union.

Consider this: Since January 1, 2010, if one had bought silver worth Rs 1 lakh, that investment would now be worth Rs 2.25 lakh. If the same was invested in gold, it would have been worth Rs 1.44 lakh. True, silver has given much better returns than gold, but the same might not be repeated year after year. Compared to this, the sensex has barely moved. In case you had played it safe and had put the same amount in a bank FD, it would have maounted to nearly Rs 1.12 lakh now. While gold is currently hovering around Rs 24,000 per 10 gram, silver, after touching Rs 75,000 per kg, is now down at about Rs 61,600.

Precious metals, especially gold, for long has been considered a hedge against inflation and also one of the best bets in uncertain times, which continue to play out with even the US joining the league of nations negotiating substantial economic head winds. The outlook for the yellow metal for the next few years also paints a rosy picture . India is the largest consumer of gold and recent analyst reports suggest that the demand for the precious metal can only go northward.

The same factors that got gold to the current record high level, is also expected to keep it going for some more time. "Higher level of insecurity , weak US dollar, low interest rate in most countries around the world and lack of alternate investment options are driving up gold prices," said Jayant Manglik, president , Religare Commodities. His advice.

"For retail investors there is still something to buy. One should buy at dips, say after gold prices fall about 4% after a rally and then wait for it to rally again and book profit when the gain is about 15-20 % annually," Manglik said.

The idea that the demand for gold in India could defy Newton's law of gravity, i.e. what goes up comes down, at least for a couple of decades, is based purely on the country's demography, a report by the World Gold Council says. About 50% of India's 1.2 billion population is below 25 years of age. Going by the numbers, it is estimated that over the next decade, every year there would be about 1.5 crore weddings in the country . And since gold is an integral part of most Indian weddings , this itself will create an additional demand of about 500 tonne of gold annually , the report said.

And this is over and above an estimated 500 tonne of gold that would be transferred between the families involved in each wedding. If the WGC's estimates are extrapolated at present prices of about Rs 24,000 per tola, about Rs 1.2 lakh crore will be spent each year on buying gold for weddings alone. For the sake of comparison, with that kind of money every year one can buy half of RIL or nearly the whole of SBI at current prices.
Source: http://economictimes.indiatimes.com

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