Gold Poised For Rs. 18000: ASSOCHAM

With stocks markets at around 52 weeks high with their valuations overstretched and inflation continuously inching up, there is every possibility that the gold prices would scale up by another Rs. 2,000 per 10 gram and settle at around Rs.18,0000 per 10 gram during forthcoming festive season, says assessment of The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

According to ASSOCHAM, gold is the only commodity which has seen huge built up in the exchange traded funds (ETF) in the last few weeks and will gain further momentum in view of festive demand and low international production once it convincingly stays above the psychological barrier of $1000 per ounce in international markets for some time. It is interesting to note that investors are now used to high Gold prices.

Therefore, the bullion is likely to gradually see spurt in it’s prices and stay around Rs.18,000 per 10 gram by Diwali from current levels of around Rs. 16000 per 10 gram. This is due to the fact that more and more investors are flocking to take refuge to gold as an asset class as it happens to be the best bet against rising inflation. The high valuations of stocks and its attendant risk have by and large motivating investors to part shift to gold as an investment class, says president ASSOCHAM Mr. Sajjan Jindal.

It may also be mentioned here that the bullion consumption peaks up in festive seasons and thereafter hectic marriage seasons follow to further create demand for gold consumption. It is interesting to mention that this asset class has outperformed equity and debt funds in the last 12 months. Weakening of dollar fears of accelerated inflation has also contributed flow of money to safer assets like gold.

As per ASSOCHAM analysis, stock valuations which are around at 12 months high appears to be overstretched as investors are fleeing to precious metal as they are losing confidence in the global economy with Shanghai Stocks hitting 3 months low this week, there is strong feeling among investors not to expand and increase their exposure to this asset class.

With exposure in gold traded exchange funds building up in international markets and touching life time high, investors attention for investment in the bullion has picked up substantially. NSE has reported two fold jump in its trading volumes in gold ETF counters recently, felt the ASSOCHAM president.

Since all asset classes have shown substantial growth in the last 6 months, gold is the only assets class that showed resilience and has hardly gone down steeply. Moreover inflation fears are also building up and with stock markets reaching overstretched valuations, gold therefore will continue to lure investors as it assures the safest returns, feels the ASSOCHAM.

Gold is set to go up in the medium term (six months or so) because investors the world over are losing faith in paper currency. Even though jewellery demand has reduced due to high prices, the greatly increased investment demand has more than offset it. The Chamber expects gold to touch Rs. 18,000 per 10 gm by Diwali and then slowly drift down.

The ASSOCHAM has advised that if one plans to invest in gold, one should not incur the following mistakes (1) buying gold jewellery - high cost and lack of purity of gold and (2) buying pure gold from banks (you will pay about 25% higher than the market price. The best way to buy gold is directly from Singapore or Dubai in the form of bars. Again, buy 999 purity gold and not 9999 purity gold because you pay a premium for the latter (which you may find it difficult to realize in India).

Gold ETF is another option, particularly if you are a resident Indian and don't have a friend or relative in the Gulf willing to bring gold for you. In normal times about 5% of your investment should be in gold, but these are abnormal times so have about 10% to 15% in gold.