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Wednesday, July 30, 2008

Whatever the form,Gold is just as attractive.

Going by the large number of emails I received for my last week”s article on buying gold as a long term investments,one can safely bet that despite all the hype and hoopla about equities outperforming all other investments,gold remains the most popular choice among Indian investors.

Reader”s questions are ranged from the very basic issues like how to buy gold to the more sophisticated ones like technical view on gold prices over the next 1 year.I will try to answer a few as best as I can.

Gold can be bought in various forms,i.e,in physical form as jewellery or gold bars or like shares from the commodity exchanges.If buying gold is the true intention then jewelery may not be the best option because jewellers have to mix a lot of impurities in gold while making jewellery.Gold jewellery is not pure gold and therefore,not the best way of buying gold as investment.

Pure gold is available in the form of bars of 110gm or even 1 kilogram.These bars can be bought from the designated branches of many nationalized banks.The bars are available in 0.999 purity or 0.995 purity.The rates for the two varieties vary and therefore investors should check the purity markings on the bar before paying up the price.Besides bank branches,many jewelers too sell bars and small investors can buy smaller pieces of bars from jewelers.

State run companies like mmtc too have set up counters to sell pure gold coins.These are available in most big cities and you can get pure gold coins from these counters.However,as one of my readers pointed out,the selling price at these outlets is slightly higher since the agency is marking up the prices.This makes buying from these outlets a bit unattractive.However if you are looking for complete safety and intend to hold gold for the long term,then this could be a good option.

Besides buying gold in the physical form,investors can also buy the yellowmetal in demat form(just like shares) through the commodity exchanges.National commodity exchanges like the NCDX and MCX allow investors to buy futures contracts of gold.This allows investors to buy a fix quantity of gold,just like shares without getting real delivery of the metal.These future contracts are then settled at the end of month and investors can take fresh positions to carry forward their gold position.

Most stock brokers are today offering trades on the commodities exchange too.Investors should check with their stock brokers for the procedure to buy gold futures on the commodities exchange.This is an efficient way of buying gold but it can often lead to speculation by investors who get carried way.Therefore,caution and discipline is required while investing in gold and silver futures.

In my note so far,I have focused on gold as an investment opportunity.The big drawback with gold is that it is a very expensive commodity and large investments are required for it.Investors can also look at buying silver as a hedge against inflation.Silver too has gone through a cycle of price trends and its prices are expected to move in tandem with gold.Silvers too offer an alternative investment avenue for risk-averse investors.


Regards,
ARUN
I can be reached at:-arunanalyst@rediffmail.com

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