Gold prices to go up, Use Gold ETF, FoF to make the most of it: Kotak

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Lakshmi Iyer, Kotak Asset Management The potential of 'gold' as an asset class for investment has been a function of jewellery and industrial demand, inflation outlook, strength of the dominant currency, geopolitical stability and the gold supply variable. The investment demand for gold tends to rise in the case of adverse economic condition, rising inflation, weakening dollar, or general sociopolitical instability. The 17.70% CAGR run-up in the gold prices since 2000 has largely been attributable to the surfeit liquidity in the early part of the decade, and in the latter half, to the turbulent economic conditions post the sub-prime crisis, which continued to contribute to the gold rally. However, despite the teetered recovery in the global economic environment, the optimistic outlook on gold remains unchanged. And here's why. Today's geopolitical climate has become increasingly volatile. The stability of regimes in some of the Middle East and North African states is being questioned due to the 'Arab spring'. This has spiked uncertainty in the region, which, in turn, has provided significant buoyancy for gold prices. However, it is the extensive hardship surrounding the sovereign debt solvency in Europe that has caused increasing jitters to the financial markets (and has spiked the performance of gold). Moreover, the likelihood of renewed slowdown in the US, and the prevalence of high unemployment, too, continues to drive up gold demand. It is believed that if the troubled economies resort to monetary expansion to wriggle their way out of their debt problems, the resultant erosion in money-value may further increase the prices of gold. Thus, the resultant investor wariness, and the decline in the global risk appetite, is expected to fuel institutional and retail demand for gold. Also, traditionally, the demand for gold has had a seasonal flavour to it. The post-monsoon festivities and the onset of marriage season in India, the corresponding gold inventory expansion by the US and Europe retailers, and the week-long national celebrations in China, all come along during this phase of the financial calendar. The interplay of these factors provides a potent case for investment in gold. But, from a retail investor's point of view, physical investment in gold comes with some inconvenience. Buying physical gold involves the risk of theft, misplacement and potential wrong pricing. Also, when an investor needs to sell physical gold, he/she has to go through the inconvenience that accompanies the process of valuation, bargaining, transaction and delivery. But, thankfully, there is an alternative avenue to invest in gold without having to face these inconveniences. It is through gold exchange traded fund (GETF). Gold ETF is nothing but gold, traded online through a medium of exchange. Normally, each unit of ETF is worth approximately 1 gram of gold. GETF allows investors to invest in gold without worrying about purity, security or liquidity of the gold investment that is attendant with gold hoarding Buying physical gold involves the risk of theft, misplacement and potential wrong pricing. Also, when an investor needs to sell physical gold, he/she has to go through the inconvenience that accompanies the process of valuation, bargaining, transaction and delivery. But, thankfully, there is an alternative avenue to invest in gold without having to face these inconveniences. It is through gold exchange traded fund (GETF). Gold ETF is nothing but gold, traded online through a medium of exchange. Normally, each unit of ETF is worth approximately 1 gram of gold. GETF allows investors to invest in gold without worrying about purity, security or liquidity of the gold investment that is attendant with gold hoarding