Experts advise caution on gold-rush

Where prices will go isn’t easy to predict; there are schemes to accumulate for consumption, but weigh the details.

After touching Rs 25,815 per 10g last week, gold bounced back to over Rs 26,000 this week. Viral Shah, senior vice president at Geojit BNP Paribas, says it is difficult to take a call on which way it would go from here.

He says this is not the time to put a large amount in this asset class. "The rally in gold may not have ended, but one needs to be careful," Shah warns. He advises putting small amounts over a period of time to take advantage of different price levels. Shah expects a daily swing of Rs 350-Rs 450 per 10g.
 

GILT ADVICE

• Avoid lump sum investment in gold at this level
• Small investments can be made via gold fund of funds for the long term (4-5 years)
• Short-term (1-2 years) investments should be done via debt instruments
• Jewellers' gold accumulation schemes are illiquid
• Can accumulate e-gold units for consumption, but you pay extra for delivery

Agrees Naveen Mathur, associate director, commodities and currencies, at Angel Broking: "We may see some opportunity of profit booking in the coming months and a correction. Therefore, putting a large amount may not be wise decision." Mathur sees support for gold at the $1,720 level (Rs 25,100 per 10g).

If you are looking to accumulate gold for consumption (marriage or gift), there are two ways. One is the gold accumulation schemes of jewellers. The Tata Group's Tanishq has been offering a Gold Harvest Scheme for the past eight years and recently released a new campaign. Others such as Pune-based PN Gadgil and local jewellers also offer this.

These schemes function like a bank recurring deposit, that allow you to save small amounts for different tenures. At the end of the term, you can buy gold jewellery worth the accumulated amount, inclusive of making charges. Say you have to pay Rs 1,000 for 12 months with Tanishq, you pay for 11 months and the jeweller pays the last instalment. You can invest as little as Rs 500 a month.

However, Sumeet Vaid of Freedom Financial Planners advises against the jewellers' scheme. The quantity you get at the end of the term depends on the price of gold on that day, he says, and you can't predict the future price. If you are cash-strapped, these schemes don't allow cash refund. Hence, this is an illiquid option to get locked into. And, many don't allow buying of coins.

This scheme returns eight to nine per cent, yearly. In comparison, ICICI Bank's recurring deposit offers 8.25 per cent for a year and HDFC Bank gives 7.25 per cent. These are also safer.

Next is National Spot Exchange's e-gold. You can ask for physical delivery, but you have to cough up a higher cost. Apart from the demat and brokerage cost, you need to pay Rs 200 for delivery, irrespective of the quantity and a depository charge of Rs 50 for every request. Experts say you can accumulate these units over time. But, you need to open a different demat account with a National Spot Exchange-licensed broker.

And, "you cannot invest in an asset class for near-term consumption," says Vaid. Anil Rego of Rights Horizon says if you have a longer-term horizon (four to five years), only then invest in gold, through a gold fund of funds for systematic investment. Though, the expense ratio here is slightly more than that of exchnage traded funds (25-30 basis points higher).

For anything less than three years, invest in fixed income instruments such as bank fixed deposits (earnings 8-10 per cent yearly), debt mutual funds (giving a little over seven per cent) and fixed maturity plans (nine per cent).