Can gold hit the Rs 20,000 mark?

Posted On Wednesday, Dec 16, 2009

Sure, gold can hit the Rs 20,000 per 10 gm mark.

At any point in time, the price of gold in Indian rupees is a function of the price of gold expressed in USD (the base currency for pricing gold globally), which is then converted to Indian Rupees based on the prevailing USD to INR foreign exchange rate.

Gold prices denominated in dollars have increased very sharply and have inched closer to the $1200 per troy ounce mark.

The appreciating Indian Rupee has, to an extent, led to some disappointment by reducing returns for the Indian investors. But not much, gold prices have surged above the Rs.18,000 per 10 gms level giving a total return of 32% from January 1st, 2009.

Investors are confused with different price predictions by various experts for:

  1. their expectations on price of gold and
  2. the possible foreign exchange rate between the USD and the INR.

Given below (Table 1) are various scenarios of the price of gold in INR based on for varying levels of the US Dollar price of gold and the USD – INR exchange rate.

Table I: How gold can touch Rs 20,000 per 10 gram
Quantum Mutual Fund_GoldenTruth_How gold can touch Rs 20,000 per 10 gram
* Gold prices in INR are inclusive of all the duties and taxes applicable in Mumbai (The above given table is only for information purposes.)

According to Table 1, with gold hovering just short of the USD 1,200 per troy ounce level ($1185 to be precise) and the exchange rate of the US Dollar buying INR 46.46, the price of gold per 10 gms in India has moved beyond the Rs 18,000 level.

So, if gold prices surge by, say, 11% to USD 1,315 per troy ounce....and the USD to INR fx rate remains steady at the present levels, then the price of gold can cross Rs 20,000 per 10 gms.

Or, conversely, if the price of gold inches up to USD 1,200 per troy ounce and the INR loses value against the USD to a level of USD 1 = INR 51 then, yes, the price of gold can move to the vicinity of Rs 20,000 per 10 gms.

What may also happen, though, is that price of gold does increase to, say, USD 1,300 per troy ounce (this is 31 gms approx.) but the Indian Rupee may gain against the US Dollar (as it has this past few months) and the price of gold measured in Indian Rupees may not move up by much.

So, take your pick of where you think the USD price of gold will be and where the fx rate of the US Dollar against the Indian Rupee will be, and use the data in Table 1 above to figure out where the price of gold in Indian Rupees per 10 grams will be. Click here to read some of our views on INR

Whatever the permutations and combinations you come up with, don`t forget to ensure you own some gold in your overall portfolio.

Remember, in the year 2007 the theory was that the Indian Rupee would strengthen to INR 30 for every 1 US Dollar.

Well, all the brilliant economists got that wrong.
The INR slipped to Rs 52 by March 2009 - it went in the opposite direction. The INR weakened.

Also, about 10 years ago, the Australian and Swiss central banks sold about 30% of their gold reserves.
Gold, as an asset class, was declared to be dead.

Or so they said.
Gold has risen by more than 300% in price in USD terms since then.

And a very powerful entity in India seems to agree that gold is still a valid and viable long term asset to own.

Our very own conservative - and sensible – Reserve Bank of India has recently bought gold at USD 1,045 per troy ounce.

So check out Table 1 above and have some fun making whatever assumptions you want.

But don`t forget the simple message of the Path to Profit (Click here to download the presentation for free): “Always Invest Across Asset Classes.”
Buy some gold.
If you don`t have any gold, don`t buy everything in one trade, in one day.
Buy it over the next 36 months.

But read the offer document of Quantum Gold ETF and start making your allocations before the Chinese and the Russians start buying more gold. Because, by then, it may be too late.


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

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