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Gold sizzles, but is it hot?

business Updated: Sep 09, 2009 01:59 IST
Sandeep Singh

As gold crossed Rs 16,000 per 10 grams after the international prices crossed $1,000 per troy ounce (1 troy ounce is 31.1 grams), many would be blaming themselves for not having invested in it when it was cheap. But as prices surge, does it still make sense to put one’s money into the yellow metal?

Beware, say experts who advise against it.

“I am surprised at the surge in gold prices,” said Jamal Mecklai, CEO of financial advisory firm eMecklai. “The prices are very high and I do not think that it can strength any more.”

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“It is not a level to buy gold for investment as the upside from here is limited,” said Bhargava Vaidya, a Mumbai-based gold analyst.

Gold outperformed all other asset classes over the past year and has generated a return of 36 per cent in the period. But to expect the same going forward may be asking for too much.

“Gold prices rose on account of increasing investment in gold, heightened concern over rise in inflation, weakened dollar and concerns on the sustainability of equity markets,” said Ajay Mitra, MD, Indian subcontinent, World Gold Council.

Experts suggest that US dollar should strengthen now, leading to weaker gold prices.

While historically investors have been advised to invest anywhere between 5 and 10 per cent of their investments into gold, the World Gold Council feels the share should go up beyond 10 per cent, Mitra said.

But investment experts see reason for caution at current price levels.

“Demand will fall more,” Suresh Hundia, president of the Bombay Bullion Association, told Reuters. “Only those who are short will buy at these prices.” He estimated gold imports to fall to 350 tonnes in 2009 from 523 tonnes last year.