Should You Invest in GOLD Now?

July 25, 2014

Should You Invest in GOLD Now?

Good Morning friends! I hope you would have a great week and would be ready for a relaxed weekend with your loved ones. I wish you all a great time. Recently, I have received many requests to share my views on investment in Gold. So, here it goes.  

What Most Experts Are Saying?

Looking at the war like situations and money printing by western world they are unanimous in their view about gold prices. They all predict up move in the Gold prices. But should you invest? Let me deal with point to point. But before that let me share my track record in predicting Gold Prices.

Our Track Record in Gold:-

1.   We had asked to buy GOLD and Silver in Navratri of 2006. At that time the price of 100gms of GOLD was at 86000/- and Price of 1kg of Silver was at Rs.17500. Our target in Gold was Rs.300000/- and Silver Rs.50000/-. Since then Gold has touched our target and Silver has made a high of Rs.73000 per kg.

2.   On 28^th June 2012, we had categorically said that Gold prices are going to go down and it went down by 28% in 2013 (USD Term). Not a single expert was talking about Gold prices going down at that time.

3.   On 8^th January 2014, we wrote “Why Low Gold Imports Can Keep Rupee Under Pressure?”. In the same we had categorically said that we do not agree with the Govt target of Low Gold Import and latest figures prove our call. According to latest figures, 14.33 metric tonnes (MT) of gold were imported in June 2014 compared to 3.74 MT in the same period in 2013, recording growth of 74%.

(As always, when we had asked….no expert’s were talking about Gold and Silver….so, very few believed in our call….but those who believed in our call….are blessing us now.)

What can affect Gold Prices Going Forward?

According to our study, following factors can affect gold prices in India.

Import Duty:-

India has 10% import duty. Just see how it affects the prices in India. Last closing price in USD was 1292 per ounce. Now add 129.20 USD of tax, so total price comes to 1421.20 USD per ounce. If we multiply this by Rs.60, we get Rs.85272 for ounce. Per gram price comes to Rs.2750 (Rs.85272/31). This is without the seller or retailers profit. He will sell anywhere between Rs.2875 to Rs.2950 per gram.

If we consider retailers profit as constant, we are paying Rs.250 per gram extra due to tax effect.

In the first budget it was expected that Govt may reduce the import duty by some percentage. But it did not come. If import duty cuts come in Feb 2015 budget, Gold prices can go down to that extent.

USD –Rupee Exchange Rate:-

This is other most important factor that affects the gold prices. Just to give you the perspective. In 2013, Gold prices came down from USD 1800 to USD 1245. But since exchange rate moved from Rs.53 to Rs.69, prices in India remained relatively stable or moved up.

So, when you invest in Gold in India, you have above two major risk factors and they can make or mar your return targets. Now let us look at current ground realities that can affect gold prices.

Current Ground Realities:-

High Net-Worth Individual’s Fund:-

Since last 4 years, HNIs in properties got very few opportunities to book profit and come out. So, rather than investing in properties, they would have invested fresh CASH surplus in Gold at lower levels.

If the prices move up, their supply will come to the market. Property market is still down.

Ban on Gold Saving Scheme:-

As per the companies act, Under Rule 3(6) of Companies (Acceptance of Deposits) Rules, 2014, no company can accept deposit, which carries a rate of interest more than what has been prescribed by Reserve Bank of India (RBI) for deposit accepting non-banking financial companies (NBFCs).

In other words, jewellers' gold savings schemes needs to be on par with public-deposit schemes. The Rules limit the return companies can offer to deposit holders to 12% and caps the total amount of deposits to 25% of their net-worth. 

This rule is for companies only. So, companies like Tanishq, PC Jewellers, Tribhovandas Bhimji Zaveri, Gitanjali group, Gitanjali Jewels and GRT jewellers would have to comply with new Rules by returning the deposits to the public before 1st April 2015. These guys have the most money collected under such schemes.

This will affect the market two ways. It will put pressures on Gold prices going further and small investors will have lot of cash at their disposal for investment.

Modi Government:-

Modi government is taking steps to revive the economy and to make the corporate and other policies investor friendly. Currently the effects are visible in Indian Share market but it will trickle down to other market over a period of time.

Due to this Investors will get many other investment options, which were not available due to poor economic growth.

USD- Rupee Exchange Rate:-

On 12^th July, 2014, we had given a bold call about USD touching Rs.35 to Rs.40 in coming 5 years.

Assuming Gold prices moves up by 50% to 70% in USD in coming 5 years, you will still get the Gold in India at current price only!!

Three Aces for NRIs:-

You have a life time opportunity if you follow us. You have three aces in your hand now.

1.   Rising equities market will double your money in coming 5 years.

2.   With the USD going down against rupee, you will gain in exchange rates also.

3.       You have visionary consultant like Hitesh Parikh to guide you.

What Is My Personal Call?

Chalie Munger had once said…..“The first rule for success in life and investment is not to fool yourself and you are the easiest person to fool yourself.”

Looking at the risk factors and ground realities mentioned above, if you still invest in Gold, you would be fooling yourself. Invest in Indian Equities rather than in Gold.

If you want to change your financial destiny for better by investing in Indian Equities, your destination is Destiny Management.

Do contact us.

Follow me on Twitter @hiteshmparikh Or on Whatsapp - +91-9869425399.

Live With Passion…Invest With Passion.

Hitesh Parikh.