It is not too late...

Nov 2009

There must be something about this shiny shimmery metal that’s keeping its worth moving up. If you thought this commodity was already performing well, brace up to hear the latest update: During the past few days gold prices have climbed by almost $50, zooming to test and cross the psychological mark of $1,000 / ounce. Converting to INR, it means that gold prices leaped above Rs.16,000 per 10 gms!

----- Path to Profit - A simple journey for your investments -----
Click here to meet Ajit Dayal in your city
as he brings 'Path to Profit' to South India
-----------------------------------------------------------------

What you see below is a representation of how gold prices have had an "upside breakout" from their so-called "consolidation" mode (ref: Chart 1). Technical experts suggest that prices now have a fair probability of testing the all time high of $1,030 and further increasing to new record levels, which is a justifiable estimation considering global inflationary fears and expectations of the US dollar weakening.

Chart 1: Gold Prices (in USD)

Source: Reuters

According to the markets, ‘Safe Haven’ purchases from investors seeking to move away from risky assets, is the primary reason for this gold move. Adding to this movement, fresh investments pushed the gold market through the top of the consolidation pattern at $975. Presumably, investors are getting increasingly wary about the recent rally in risky assets (like equity shares) and are using gold as a hedge against the possibility of a correction. Another interesting expert opinion is that China is purchasing more gold for its currency reserves and is encouraging the purchase of gold by its locals as a lucrative investment vehicle.

With the macro factors continuing to be supportive of higher gold prices, investors should have seen some decent gains by now and can expect some more good news to follow.

Did Indians sell too early?
We also observed that Indians sold a lot of personal gold earlier in the year. With prices topping Rs.14000, people started queuing up to sell their gold assets, and it was no surprise either when the queues grew longer once gold touched Rs.15,000 / 10gms.
For those who thought that these record prices were unsustainable, selling personal gold was a move to mainly lock-in profits; so-much-so that some even sold their holdings at a steep discount in the physical market. Scrap sales numbers from World Gold Council showing big sales from India earlier during the year, further confirm this trend.

Unfortunately though, the investors who were waiting for lower prices to allocate some portion of their portfolio to gold, could now be chasing higher prices as they continuously increase their "buying price targets" only to see prices move further away.

So, is there still some hope for these potential gold investors? What should they do next?

It isn't very late as yet...
Yes, you heard us right: It’s not too late as yet...
The fundamental factors are still as relevant. The demand supply mismatch can possibly force prices to move much higher if investment demand from investors and central banks seeking diversification continues at current pace.

Chart 2: Gold is under owned

Source: World Gold Council

As seen in the above Chart 2, investments in gold still constitute a very small pie as compared to investments in stocks and bonds. The small size of investment in gold demonstrates the potential for a shift of money into gold. If gold were to become a more mainstream asset, if a small percent of the cash held in money market funds and savings were re-directed towards gold, then the impact on gold prices would be profound.

Gold prices have the potential to increase further to new record levels. Even the inflation adjusted peak in gold prices is around $2,300. Many experts have predicted gold price to rise in excess of $1,500 - $2,000 levels.

It’s simple; if you do not own gold as a part of your portfolio, you should buy some. This will not only help you gain from the potential increase in gold prices but is likely to protect your portfolio from losses during times of global economic and financial crises.

But - the eternal question - is this the right time to buy gold?
If you have not bought an adequate exposure to gold and are still looking to allocate more, use any pullback in gold prices as an opportunity to add more gold to your portfolio. Or, you could decide to keep allocating to gold on a gradual basis (every week, every month) and reap the potential benefits of any increase in gold prices and minimise the losses in case gold prices head south.

--------------------------------------------
Disclaimer:

The views expressed in this article are the personal views of the Fund Manager of Quantum Gold Fund. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. This information is meant for general reading purpose only and is not meant to serve as a professional guide/investment advice for the readers. This article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments.

Investment Objective: Quantum Gold Fund's (QGF) investment objective is to generate returns that are in line with the performance of gold, subject to tracking errors. Asset Allocation: QGF will primarily invest in physical gold and if allowed under SEBI Regulations, also in gold related securities, but may invest in money market instruments to meet liquidity needs. Terms of Issue: QGF is an open-ended Exchange Traded Fund. Each unit of QGF will be approximately equal to the price of half (1/2) gram of Gold. Units will be issued at NAV based prices. On an ongoing basis direct purchases from the Fund would be restricted to only Authorised Participants and Eligible Investors. Units of QGF can be bought /sold like any other stock on the National Stock Exchange of India Ltd (NSE) or on any other stock exchanges where it is listed.   Entry Load: Nil Exit Load: In case of QGF: Nil in case of Authorised Participants; 0.5% in case of Eligible Investors. Risk Factors: All Mutual Funds and securities investments are subject to market risks including uncertainty of dividend distributions and the NAV of the schemes may go up or down depending upon the factors and forces affecting the gold and securities markets and there is no assurance or guarantee that the objectives of the scheme will be achieved. Quantum Gold Fund, is the name of the scheme and does not in any manner indicate either the quality of the Scheme, its future prospects or returns. Scheme Specific Risk: QGF is the first gold scheme being launched by the AMC. The AMC has no previous experience in managing gold scheme. The QGF’s NAV will react to the Gold price movements. The Investor may lose money over short or long period due to fluctuation in Scheme’s NAV in response to factors such as economic and political developments, changes in interest rates and perceived trends in bullion prices, market movement and over longer periods during market downturns. Trading volumes, settlement periods and transfer procedures may restrict the liquidity of these investments of the QGF.  It is to be distinctly understood that the permission given by NSE should not in any way be deemed or construed that the Scheme Information Document for QGF has cleared or approved by NSE nor does it certify the correctness or completeness of any of the contents of the said Scheme Information Document. The investors are advised to refer to the Scheme Information Document of QGF for full text of the ‘Disclaimer Clause of NSE’. Statutory Details: Quantum Mutual Fund (Fund) has been constituted as a Trust under the Indian Trusts Act, 1882.Sponsors: Quantum Advisors Private Limited. (Liability of Sponsor limited to Rs. 1,00,000/-)Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited (AMC). The Sponsor, Trustee and the Investment Manager are incorporated under the Companies Act, 1956..The past performance of the Sponsor / AMC/ Fund has no bearing on the expected performance of the scheme. Mutual Funds investments are subject to marker risks. Please read the Scheme Information Document / Key Information Memorandum / Statement of Additional Information / Addenda carefully before investing. Scheme Information Documents /Key Information Memorandums/ Statement of Additional Information can be obtained at any of our Investor Service Centers or at the office of the AMC 505, Regent Chambers, 5th Floor, Nariman Point, Mumbai – 400 021 or on AMC website www.QuantumAMC.Com