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5/29 Prajna Capital - An Investment Guide

Gold ETFs glow gets brighter
May 27, 2009 at 10:18 pm

Investors are slowly warming up to the idea of exchange traded gold schemes from mutual funds. This isn't surprising since they have given an impressive 20%-plus returns in the last one year. The uncertainties in the economic environment is another reason why investors are parking money in gold, as it has always been considered a hedge against uncertainty in troubled times.

Investor interest in gold ETFs is slowly picking up. I won't say there are huge inflows, but we have certainly seen incremental flows into the fund. In between, there was lull when gold prices peaked.

We are getting a lot of enquiries on gold ETFs. This is mainly because of excellent returns in the last one year, which is almost double than that of debt schemes. Also, people are not able to take a call on the stock market. They want to park their money in a safer place till they are confident about the future course of the market.

However, investors should be realistic about expectations on gold ETF returns, warn financial advisors. Most of the gains are because of the volatility in the (US) dollar rate. At one point, the dollar touched 52; in a single day there was a movement of Rs 1.25. During such times gold is expected to give good return. However, these kinds of returns are not sustainable. For that to happen, the dollar should crack by 15% or more. It will sure weaken but not that much. Another scenario is the US government devaluing the currency, which seems very unlikely. However, this doesn't mean investors should overlook gold as it will not give impressive returns in future.

According to financial advisors, gold should always be a part of every investor's portfolio. You can expect 10-15% returns from gold. But it is important to include gold in your portfolio because it's a great way to diversify your portfolio. It always hedge you against uncertainty in troubled times such as the current one. Gold gives stability to your portfolio and buying gold ETF is the best way to do it.