On the back of weak dollar and political turmoil, gold price rose to near 28-year high to touch $850 per ounce (31.1 gram) in the international market on Wednesday. Particularly, the expectation that US economy might face a slowdown and thereby dollar might weaken further, has resulted in gold emerging as one of the important investment instruments. In the domestic markets, gold closed at around Rs 10,800 per 10 gram.
On Wednesday, the gold crossed the $850 per ounce mark — highest since January 21, 1980. In the last five years, the gold has given a handsome return of 135% in dollar terms. In the last one year, return from gold investment has gone up to 30.5% in dollar terms and 26% in Japanese yen.
In India, gold prices have not fallen as increased as in the international market in dollar terms, because of appreciation of rupee against the US currency. If the present trend continues, there is an expectation that gold might cross the $1000 mark.
As the crude petroleum price is hovering around $100 per barrel, the global economy is expecting a rise in inflation. Gold is an important investment instrument to hedge against inflation also. A senior fund manager said that the size of the gold portfolio in total investment of a bank or high net worth individuals has gone up in the last couple of years. He said that earlier, when petroleum prices were under control, investors had moved away from investing in gold. In fact, in late nineties of twentieth century, most of the central banks had started selling gold from their reserves as the gold prices started tumbling.
The geopolitical tension since 2001 have also made the yellow metal an attractive investment. Recent turmoil in Afghanistan, Iran and Pakistan have also made investors turn to gold to park their investment.
India continued to be the biggest market for the gold. However, most of the purchases are made in jewelerry segment. For the last few years, after the entry of banks and companies in the business of selling gold, retail investors have turned towards investing in gold bars and coins as they are assured of quality. Small time investors have also turned towards investing in gold as it is available in smaller denomination like one gram and two gram. Silver also remained bullish in the market, closing at Rs 19,250 per kg in the domestic market.
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