For last couple of weeks we have been hearing about global financial turmoil, crisis in US financial markets and its spillover
effect on other markets including India and weakening dollar. Our markets also witnessed huge swings and remained
volatile in last few months. This again retaliated our belief of importance of asset allocation. Recently with surging Gold
prices, allocation to Gold as an asset class has gained momentum. We all know Indians are the largest consumers of Gold,
but more as end user than investors. Now we have a convenient option to participate in rising price of Gold as an investor
through AIG World Gold Fund.
Gold Price is on consistent rise since 2004 as it has crossed Rs. 12000 per 10 gram in April 2008 compared to Rs.6000 level
Primary Reasons to Invest in Gold:
As a Hedge against inflation.
As a safe haven in times of geopolitical and financial uncertainty.
As a store of value.
A Good Diversifier of portfolio.
Why Gold Now ?
Gold has always been viewed as strong store of value throughout the world. This will keep its demand on higher side.
As confidence in world financial markets erodes, investors rush to buy gold.
There is a strong positive correlation between Gold and Oil prices. This means if oil prices move up, people will buy more
gold as higher oil prices will lead to inflation and Gold is the most effective hedge against inflation.
Supply of Gold is likely to be under pressure due to decline in finding of Gold reserves. As per industry estimate there may
be only 41000 tonnes of gold in the earth left to be mined.
Why Gold Mining Cos ?
Performance of Gold mining cos is highly co-related to gold prices.
As costs are essentially fixed for mining cos, increase in gold prices directly impacts the bottom line earnings.
Operating profit margins expanded in 2006-07 with higher gold prices. Operating Cash Flow increase