IST, Narendra Nathan, ET Bureau
The stock market may have been flat for the past few years, but there
are still some lucrative investment options available. In addition to
the opportunities in the equity market itself (see page 3), there are
several prospects in other asset classes.
This is because each asset class has a different cycle, which investors can use to their advantage. For instance, gold has delivered high returns over the past four years. Even in the US, gold has been beating equities for the past 12 years.
But will gold continue to generate better returns in the coming years
as well? It seems likely because the factors that are pushing gold
prices up are expected to remain for a few more years. However, gold
investors need to be cautious in the short term as the market will be
volatile.
What's affecting gold prices?
Though gold is supposed to be a hedge against risk, it has been
fluctuating in the international market along with other risky
commodities in the recent past. This is because people are worried about
their money and do not believe they will be able to earn good returns
on it.
So, they are stacking assets that are perceived to be safe, such as the dollar, the yen and treasuries from the US
and Germany. This may lead to a minor correction in the price of gold
during the short term. "Due to the strengthening of the dollar, gold may
fall from about $1,600 an ounce now to $1,300," says Praveen Singh,
senior commodities analyst, Sharekhan.
Though gold is being
considered as a risky asset currently, perception will change once the
Eurozone crisis peaks, and this may trigger a rally in gold. "If the
European situation gets out of control, demand for gold may increase in
Europe itself. Gold prices may climb back to $2,000 an ounce in 1-2
years," adds Singh.
 |
To fight the ongoing Eurozone debt crisis, central bankers across the
world will be pumping in money to stimulate their economies and also to
keep their currencies cheap. So, will the US Federal Reserve
announce a third round of quantitative easing in its meeting on 19
June? "Though growth is slowing down in the US, it is not enough to warrant
a quantitative easing now," says Sonal Varma, economist at Nomura
India. However, a flare up in the Iran-US nuclear stand-off could
trigger a gold rally
