Gold ebbs, but sizzle to stay

INDIANS BOUGHT 607.6 TONNES OF GOLD IN THE FIRST NINE MONTHS OF 2012, AS PER THE WGC

Yellow metal likely to retain its ‘safe haven’ tag. Keep a small chunk in your portfolio, say experts

Gold prices in India are expected to move up in 2013 despite a recent slide, say experts.
Prices of the yellow metal have fallen around 6% so far from its all-time high of R32,975 on November 27. It closed marginally lower on Monday at R30,730 per 10 grams against Friday's close of R30,760.

With Europe still in recession and the US struggling with fiscal cliff issues, gold is likely to retain its “safe haven” tag compared to equities, as investors use the yellow metal to hedge against inflation.
“Major economies around the world are still struggling for growth and various issues including fiscal cliff are still unresolved. Gold’s safe heaven appeal will continue to attract investors in 2013,” said Hitesh Jain, gold analyst, India Infoline. “Moreover, the US Federal Reserve’s decision to keep interest rates low till 2015 augurs well for gold. The recent fall in gold prices should be seen as an opportunity to invest in the long term in the yellow metal.”
“There is a lot of money flowing around the world which would push inflation up,” said Naveen Mathur, gold analyst, Angel Broking. “Gold prices are expected to move up going forward as investors use yellow metal as a hedge against inflation.”

However, it should not mean that an investor should put all her eggs in one basket. Financial planners suggest that investment in gold should not be more than 10% of the total investment portfolio. "If your investment in gold is less than 10% of total investments, then you should go for gold," said Vishal Dhawan, founder, Plan Ahead Wealth Advisors.

Indians bought 607.6 tonnes of gold in the first nine months of 2012 according to the World Gold Council. India's gold import jumped nearly 50% to $60 billion in 2011-12 against the last fiscal year, pushing the current account deficit to a record $78.2 billion or 4.2% of GDP (gross domestic product).

WHAT TOOK THE SHEEN OFF GOLD

The rupee’s decline against the US dollar: From R53 in the beginning of this year, it has so far lost more than R2, or 3.77%, against the $. A weaker rupee makes gold imports costlier

Sluggish domestic demand at prevailing high levels: Investors were seen shifting funds from weakening bullion as equity markets have been rising

Tax on gold sales: The Indian bullion market witnessed a brief closure in March due to traders protest against the budget proposal to hike import duty and levy on branded jewellery, which was rolled back by the government later in April

Recovery in the US: The economic uptrend in the US caused demand for gold, a safe haven investment globally, to dry up

However... High inflation rates, arising from monetary stimulus measures, may bring investors back to gold as a hedge against price-rise.

THE 24-CARAT QUESTION

Gold seems to be losing ground. Should you continue to bet on it?
R3,440 or 12.7%*

Rise in gold prices in 2012

R6,605 or 32.1% Rise in prices in 2011
R32,975 per 10 grams All-time high gold price, recorded on Nov 27, 2012
6% Fall in gold prices from its lifetime high
R7,220 or 14.2% Rise in silver prices, per kilogram, in 2012