Investing in Gold

If anything comes to my mind seeing the recent blood bath in the equity market, it is the commodity market. It is high time that you should do a rethinking on this market. Almost all the big shots in the sensex have been battered. Ask the investors and they get scared at the very mention of equity.

It is a great time to rebuild your portfolio in case you were using just equity (in the form of equity funds or direct stocks) and debt (in the form of your Employees Provident Fund, Public Provident Fund and fixed deposits) in it. Broaden your horizon. Look towards commodities.

Just like crude oil, gold too is not available in abundant. Therefore, there is a mismatch in demand and supply. Gold and crude both move against dollar almost simultaneously.

Gold as a commodity has been outperformer every time. Though it will not give you returns like equity but, still you can invest in it to hedge your risk. Gold is a natural hedge against inflation. So it will at least provide stability to your investment and keep your money heading towards inflation trend line.

The average return gold provided during 1995 to 2008 was 12.69% per year and at the same time sensex provided 23.05%. So you can see the return on gold is quite over the inflation prevailing in the economy.

The other reason for investing in gold is US economy. Every time the Fed cut rates, dollar will weaken and gold prices strengthen indicating that all is not well with the economy. Looking at the past few months in context of subprime, you can expect more cuts from the Fed. Mind you worst is not over. Therefore, gold has a good future till the subprime crisis cools down.