India is ubiquitous for its vibrant culture, grand festivals and most Indians believe in buying assets such as gold, silver, vehicles, and houses on auspicious days. It is said that, beginning anything new on these days usher in prosperity and good fortune. This is why you may find scores of people buying gold, signing real estate deals or buying new cars, especially during the dussehra or diwali festival.

Banking on this predictable purchasing pattern, businessmen launch attractive festive season offers. With the emergence of e-Tailing in a big way, there is competition among sellers to offer the customer “the best deal", with well-known jewellery houses racing not far behind. There are specials offers for every occasion, sometimes offering you a whopping 50% discount on making charges or cut prices of diamond jewellery.

Festivities apart, looking through the Finance window uncovers one question, is it worth buying an asset on auspicious days without paying attention to the fundamentals? At the beginning of this new festive season, if you are looking up for information on how gold is faring or what the future holds for precious metals, this is a must-read.

Why buy gold?

First and foremost, be sure why you are buying any asset. For example, if you are buying home, decide if it will be the new residence or leased out.

Similarly, if you are buying gold jewellery, ask: Will it be worn every day or occasionally? If you are purchasing jewellery as an investment consider a shift in perspective. Truth be told, jewellery is not a sound investment. If you want to buy gold in physical form, purchase gold coins or bars. For ownership in paper form, consider the Gold Exchange Traded Funds (ETFs) as one of the best alternatives available.

The advantages of Gold ETFs:

• The safekeeping of your gold is assured
• Cost effective compared to buying gold coins and bars
• Gold ETFs enjoy a favourable tax treatment as they don't come under the purview of wealth tax
   

Should you buy gold this festive season?
 

Here's a peek into how gold has fared over last five years. Although the intent isn't to forecast, the past data is always a good starting point.
 

Lacklustre Movement of Gold

Data as on October 09, 2015
(Source: ACE MF, PersonalFN Research)  

Gold is a universal asset and its price is not determined by local markets. A matrix of global factors decides the fate of the precious metal. Gold shares inverse correlation with the U.S. Dollar; i.e. when the U.S. Dollar is weak, gold prices go up and reverse is also true. This explains the depressed movement of gold we have seen over the last two years, as the U.S. Dollar remained strong.

Reasons why the U.S. Dollar held its own...

• Slowing down of economic growth in most parts of the World has somewhat compelled many nations to opt for liberal monetary policies. Liberal monetary policies result in weakening of domestic currencies against U.S. Dollar
   
• Loose monetary policies made domestic currencies weak against U.S. Dollar which is the World reserve currency;
   
• Concurrently, the Federal Reserve (Fed) in the U.S. has been considering hiking interest rates up; providing further props to the U.S. Dollar
   
• Consequence of this is anything denominated in U.S. Dollar has become cheaper and gold is no exception.
   

For Indians however, gold is priced in Rupees and any factor that depresses India's currency usually leads to rise in domestic gold retail prices. Interestingly, though gold is a universal asset, its movement can be quite different for two investors investing in it using different currencies.

So where is Gold heading for Indians?

At the moment, it hangs in the balance of the Fed's reconsideration of rate hikes. The job data from the U.S. still lacks absolute assurance and the inflation targets set by the authorities face a threat. With China devaluating its currency, it's important for the U.S. note how the devaluation of Yuan initially pushed the U.S. Dollar up. The Fed might not like the U.S. Dollar to rise too fast and too soon. It may eventually affect exports of the world's largest economy.

As long as the Fed maintains its loose monetary stance, gold will find support internationally. But when the U.S. finally decides on the interest rate hike, the price of gold for Indian investors may not fall much or even rise-depending on the movement of the Indian Rupee against U.S. Dollar.

Whatever the case might be, have a well-balanced approach to investing in gold. PersonalFN believes you should have about 10%-15% of your investment portfolio in gold. As far as 'timing' of your purchase goes, PersonalFN recommends investors to grab buying opportunities when gold prices are depressed, be it auspicious day and any other.

The moment you start betting on gold as if you would on a horse hoping to win a fortune, taking a deep breath is an effective way to curb that giddy-headed excitement and think sensibly. Remember, gold is an asset that isn't designed to drive returns on investment, but to provide worthy stability to your portfolio.

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