Why do investors buy Gold? Because it is a unique asset – it represents a store of wealth as well as our emotions. Gold doesn’t pay interest nor does it pay dividend.
The money gets locked up in an asset that doesn’t really produce anything. In an economy like India’s, it protects us not just from inflation but also from the currency fluctuation. Some key reasons to buy gold are:
- It represents a true store of wealth from times unknown.
- It is highly liquid.
- It is available in many formats – this Diwali the government has introduced gold bonds (paying 2.5% interest) as well as gold coins.
- It protects against inflation and currency fluctuation.
- It satiates our emotional needs to buy gold.
On the eve of Diwali, the government will launch new gold-related schemes, including the gold monetization. The government will also launch ‘sovereign gold bonds’ and gold coins with Ashok Chakra, Prime Minister Modi announced in his monthly radio programme Mann Ki Baat.
Come Diwali (and Dhanteras) and the demand for gold as investment and jewelry goes up. There is no doubt that gold has a place in everyone’s portfolio. The question is not whether to buy gold or not, the question is, at what price should one buy gold.
Last Diwali, I bought 1 gram of gold for good luck. I never saw that price again in the entire year.
What should one do this year?
Well, gold does look weak. Gold import is down significantly. If one buys gold during Dhanteras, it is more for emotional satisfaction and for the long term. Technical analysis doesn’t play any part as it is an emotional decision. However, let’s see if this looks like a good time to buy.
The above chart is for GLD from http://stockcharts.com. GLD is the world’s largest gold ETF. For Indian investor, an equivalent option to GLD is GS Gold BeES. It is trading at about 2400. An investor can buy Gold BeES just like a regular stock.
Gold has dropped about 9% in the last 17 trading sessions. All the indicators are bearish – Parabolic SAR, MACD, MFI and volume. If gold stabilizes in the current range, it does look like a reasonable time to buy. Also, according to MFI, it looks oversold.
This year, I may not wait for Dhanteras, but rather wait for the Parabolic SAR to go bullish and RSI to go down to about 20 before buying. This year, in addition to buying gold for good luck, I would like to make some money too.