Gold: Truly International Commodity

For five years running, Gold has reached new highs against the Indian Rupee...

THE PRICE of Gold has been in an uptrend for the last seven years, with heightened price activity in the last six months, notes Jayant Manglik of Religare Commodities in New Delhi for Commodity Online.

   Now the question on everybody's mind is, "What is the best way to profit from rising Gold Prices?"

   The recent fall in prices is being looked at by retail investors as an opportunity to buy in, with international Gold exchange-traded funds (Gold ETFs) garnering enormous amounts of money from depositors, all of which is deployed into buying physical gold.

   There are several reasons why Gold has been a favored investment for the last 5,000 years of recorded history. It has traditionally been held in reserve by some of the largest central banks. It offers a secure asset which may change in price, but which will always find a settlement price in one of the world's deepest and most liquid capital markets. Gold is regarded by Indian investors as an alternative safe haven to the US Dollar, and it's also considered a hedge against oil-led inflation.

   Gold has served multiple functions and met different purposes since time immemorial. It has been the basis for monetary systems, used as jewelry, as an investment, as a financial safety backup, and also found uses in industry and medicine because of its physical properties.

   The price of gold, like the price of all commodities, is driven by supply and demand. And it has always been a favorite of the commodity markets worldwide. Indeed, it is a truly international commodity.

   The largest futures markets are in the US; the physical capital of gold is Europe. Africa is the largest producer; and Asia is the largest consumer.

   Gold is considered to be a safe haven worldwide with a historical trend that investors turn to the precious metal in times of inflation and instability. Buyers also invest to meet social compulsions and also for true portfolio diversification.

   Though it is nobody's case that Gold Prices will continue rising for ever, there is a current uptrend which has some of the most prominent funds in the world investing in gold. In fact, for five years on the trot, every succeeding year has seen gold make new highs against the Rupee, and so far the trend seems to be continuing. Large allocations to investment in Gold have also helped drive up prices.

   Of course, everybody's requirement, risk appetite and cash-in-hand situation is different. So a single trading or investment solution will not be suitable for all. But on the investment front, it may be a good idea to take a long term view here.

   Whether you decide to trade in gold futures, physical gold or in "demat gold" (meaning the paper gold of Gold ETFs), we advise our clients they should look to invest between 5 to 10% of their investible surplus in Gold. Insofar as investing in gold is concerned, the trick is to buy now, keep a sharp eye on price movements and exit when the time is right.