SBI Gold Fund is there as every Indian is trying to participate in the gold rush. Let me first share few facts about gold : 1. This year Gold may generate its best 1 year return in last 32 years if it will touch $2000 (In 1979 Gold went up by 127%). 2. SPDR Gold Trust is now the largest exchange traded fund in world, surpassing the SPDR S&P 500 ETF – SPDR Gold has $77.9 billion (Rs 35,05,50,00,00,000 or Rs 3.5 Lakh Crore). 3. In India assets of gold ETFs jumped 58.3% to Rs 5,568 crore by the end of June & has moved up to Rs 6,119 crore in July. The assets were only Rs 483 crore in March 2008.
So now everyone is trying to prove “Make Hay while the Sun Shines” – but will they be successful or there will sunset before they exit. Let’s try to answer 2 questions – 2nd one is more important.
1. Should you invest in SBI Gold Fund NFO?
Without keeping any suspense answer is a BIG NO. This not only applies to SBI Gold Fund NFO, but to all Mutual Fund NFOs. One should never invest in Mutual Fund New Fund Offer for few reasons:
- Saves you from getting in herd mentality. Take the time out and go back to your asset allocation to check if the fund offers you something unique and worth allocating your money.
- Gives you time to analyze that is it right investment for me to achieve my goals. Fancy of Gold, Craze of SIP, Advertising Campaign, Supporting views from media & a big push from agents may drive you to wrong decision.
If you would like to invest in gold funds – go for Reliance or Kotak Gold Fund which are carbon copies of SBI Gold Fund. Benefit is you will immediately get NAVs rather than waiting for couple of weeks.
2. Should you invest in Gold now?
Now this is even a bigger question & it’s not only about SBI Gold or other Gold Funds but about GOLD. Frankly saying I have no idea how to value gold or say this is the right price for gold. So let me share views expressed by our reader, other blogger & few experts.
Deepika Said on SBI Gold Fund Article
“Gold price movements is not a rocket science – When the world has excessive liquidity (more dollars), its price will go up because people now will have more money to buy that same amount of gold and when the world has less liquidity (less dollars), its price will crash because now people will have less money to buy that same amount of gold.
And if you are financially intelligent to know that how to calculate gold price in comparison to the money supply and know from the key interest rates that when the liquidity will be increased or decreased than yes….You can make fortunes from Gold Investing…..
The above advise is not for all the people. If you think that you are not financially intelligent enough than please don’t go for more than 10% gold allocation. This is a gold bubble and once the liquidity will be absorbed, it will burst. The above advise is only for those who actually know everything about US monetary base, inflation & key interest rates like Fed fund rate, prime rate…etc… and keep himself updated about all of these events.” August 25, 2011
Manshu from Onemint Says
“I’m going to sit at the sidelines as far as gold is concerned, but if you do want to buy it then buy it systematically, and don’t let it become more than 5 or 10% of your portfolio. I see a lot of folks saying very proudly how gold is the biggest component of their portfolio so even though the market has crashed they have made money, but the question is what if they are wrong about the future of gold?
What if they are wrong like the people who owned real estate stocks were wrong, and the people who owned IT stocks before them were wrong?
If you truly own so much gold, and find that prices go back to where they were two years ago – that will destroy your portfolio.
Do you really want to take that chance?” August 26, 2011
The Wall Street Journal
“Is there a gold bubble?
In one respect, gold always is in a bubble. An inert metal in every sense, gold has no intrinsic value as an asset so buyers focus primarily on its resale value. This search for the greater fool is characteristic of bubbles. Yet gold having accelerated this year, the question of whether it is now too expensive takes on new urgency.
Compared with other bubbles, gold’s rise actually looks tame. In the 10 years leading up to Aug. 22, when gold closed at a record nominal peak of $1,888.70 a troy ounce, the price had risen 587%. In comparison, crude oil rose almost tenfold in the decade preceding its all-time peak in 2008. But neither hold a candle to Nasdaq: The index climbed more than 2,000% in the tech-crazed decade that ended in March 2000.” August 27, 2011
John Paulson – the largest gold fund player
Famed gold bull Paulson held his ground with his $4.6 billion stake in the SPDR Gold Trust in the second quarter of 2011. “Paulson basically is putting his money where his mouth is. He believes that gold is earmarked to move substantially higher,” said Mark Luschini – August 16, 2011
“A developed world with slower growth, a large fiscal deficit and near zero rates over the next few years, inflationary pressures in emerging economies, and larger political and economic uncertainty bodes well for history’s oldest form of wealth (gold)” August 18, 2011
George Soros – one of the world’s smartest investor
Last year, Soros said gold was the ultimate asset bubble due to in part to low interest rates. In the first quarter, Soros sold nearly $800 million worth of shares in gold ETFs. George Soros’ hedge fund continued to scale back its investment in the world’s largest gold exchange traded fund in the second quarter, according to regulatory filings. August 16, 2011
Jim Rogers – Commodity Guru
“I do not like buying anything going straight up. I like to buy something going down. So if and when gold goes down, I hope I am smart enough to buy more and I would buy silver the same way.
There is no such thing as a safe haven investment. I wish they were. Gold went down something like 70% from its top during the 1980s and 1990s, even silver went down over 90% during its bear market in 1980s and 1990s. There is no such thing in the investment world as a safe haven. I would rather own silver than many currencies these days and would rather own gold in many currencies. But I do not want to buy gold when it is going straight up. I would rather buy something that is down rather than things that are going straight up.” August 8, 2011
Hope you enjoyed reading different views on gold. My view is “Trees do not grow to heaven” – I don’t know it is a bubble or not but if it is, gold price will come down at some point of time. That doesn’t mean gold price will not go higher from current level but do you think you will be smart enough to exit before the bubble burst?? If your answer is NO then have a proper asset allocation & if answer is YES – question is do you think you will be smart enough to exit before the bubble burst?? (Keep asking this question till you get the answer NO)
What’s your view on Gold? Write it here & comeback to see it after 1-2 years.