Silver and platinum are also good long-term investments

Gold | admin | October 30, 2011 at 10:09 am

Diwali is here again. As always, many individuals would make a beeline to buy gold, silver or other precious metals and stones this festive season. However, given the phenomenal rise in the prices of some of these precious commodities, does it make sense to buy them now? Read on to find out what experts have to say.

GOLD

The yellow metal – be it in the form of coins, bars, or jewellery – is always the first choice and is in great demand on the auspicious day.

For it: "We are bullish for the medium term. There is growing uncertainty due to the Eurozone debt crisis and the effect of it is not yet built into the current price. Gold is moving in line with asset classes such as commodities and equities for some weeks now and there is ground for a rise in price," says Puneet Kapoor, executive vice-president, Kotak Mahindra Bank. He feels that while the threat of a stronger dollar continues to stand in gold's way and risk sentiment may turn a little sour as investors become more nervous about Europe, as of now, gold's price should remain well supported with decent upside potential.

"For two-three years' time horizon, we would say definitely buy gold, even at current levels. One can adopt a staggered buying strategy. We don't see prices going down soon," says Jigar Pandit, assistant vice-president, commodities and currencies, Sharekhan. Even for those looking from the consumption point of view, this is a good time to buy gold. "Gold prices have corrected by almost 10% from their peak levels. Hence, it is a good entry point to buy or invest now as gold prices are expected to peak again," says Sanjeev Agarwal, CEO, Gitanjali Export Corporation.

Against it: Gold per se doesn't have any economic value and, thus, there is no value addition. For the long term, one can't expect gold to multiply your net worth. "The amount of gold sitting in vaults due to purchases by ETFs is at unprecedented levels. This is the result of other financial assets being liquidated and money being moved into gold. While we would not see a bubble popping in the near future, volatility will rule the roost and money could move out of ETFs just as easily as it found its way in," says Aditya Apte, partner with investment advisory firm The Tipping Point.

SILVER

Though not such a hot favourite like gold, some people also buy silver. Sure, the appreciation in value is the last thing in the mind of someone buying an article that would be used for special pujas, still it wouldn't hurt to find out what the future holds for the white metal.

For it: "Its availability is limited and no new sizeable resources are being discovered. Silver has uses in industry and has some actual economic value apart from being just a precious metal. In fact, a lot of new-age industries in energy and technology use this metal and its requirement has gone up substantially as the adoption of these technologies has increased," says Apte. The economic use of silver makes it a good investment choice.

"Silver is extremely volatile and has fallen substantially from the peaks it made earlier this year. This would be a good time to purchase the metal if the objective is consumption," he says.

"People who cannot afford gold have shifted their demand to silver and this is also keeping the prices high. Compared with gold, there are fewer emotional strings attached to silver and, hence, it is more liquid. In the longer term, we are bullish on silver," says Jigar Pandit of Sharekhan.

Against it: "The use of silver in industry could get dampened as prices rise and if the economics do not work out, people will seek other alternatives. When this happens, the prices will fall as demand will be only due to its consumption as a precious metal. These are long-term considerations, but in the shorter term, one important point to remember is that price volatility will be high and, thus, only those who can stomach the risk should venture here (into silver)," says Apte. "The demand for silver usually comes from jewellery and industrial use. Hence, you can add silver to your kitty as an investment, but it cannot be given the same priority as gold," says Agarwal. Since its fortunes are linked to the industry's to some extent, you need to a keep an eye on developments concerning the industry, too.

PLATINUM

It has caught the fancy of the urban youth lately, but most analysts refuse to include it among assets meant for investment. They believe the market for platinum is still at a nascent stage.

For it: Till recently, platinum was sold at a premium to gold. But, after the bull run in the yellow metal, the gold and platinum prices are at the same level today. "Platinum looks attractive at the current price levels," says Agarwal.

Against it: In a country obsessed with the shimmering metal, the platinum market is now at a very nascent stage. Only a select few jewellers sell platinum in India, which means that the buy-back policy is not as customer-friendly as with gold. "You can't just walk into any store and sell platinum jewellery. If you are planning to buy platinum from an investment perspective, you will have to wait for the market to mature," says Agarwal.

DIAMOND

They may be the best friend of women, and Bollywood A-listers may be hardselling them. But experts are unsure of its investment value, mainly because of a lack of transparency in determining the price. They also feel that investors will end up with inferior quality stones if they are novice to the field of diamonds.

Diamond cannot be considered as investment since there is no strong price discovery mechanism and there is no standard benchmark price tracked on a daily basis, say experts. "Rapaport price is a loose benchmark for the price of diamonds. The mean price is lower or higher to this price. It is based on external conditions such as demand-supply and foreign exchange. Moreover, De Beers swings the market to a certain degree given that it is the big boy of the industry. It artificially suppress the demand or supply depending upon the market condition. Hence, the pricing is not as transparent as gold," says technical analyst Vijay Bhambwani, CEO of bsplindia.com. Also, buying back diamonds is not as easy as gold because of concerns over quality. Branded stores refuse to buy diamonds not sold by them. They promise to buy back their diamonds at 85% of the prevailing rate, minus the making charges.

"The diamond market has attracted a lot of fraudsters because of its price. 20 years ago, the market was flooded with American diamonds, which are not of superior quality. Also, a fraudster can craft fake diamonds, which are very difficult to identify even with several lab tests. One has to really have an eye for diamond to check its authenticity," says Bhambwani.

Source: Economic Times