Analysis of Gold & Silver Prices

The year 2011 ended on a bad note for most asset classes. Only returns from gold and
silver were in the green. So, an investor who put money in gold at the beginning of 2011
earned higher returns than those who focused on bonds, stocks, commodities, silver and
real estate. If one adjusts the returns with inflation, only gold gave positive returns. The
yellow metal rose 32 per cent in rupee terms, while it returned 11 per cent in dollar terms.

The value of stocks and commodities, on the other hand, declined over 20 per cent each.
Commodities would have suffered more, but a depreciating rupee arrested the fall. The
rupee depreciated 18.7 per cent against the US dollar. Bonds and debt funds fetched sixnine per cent.
Silver, the biggest outperformer in 2009 and 2010, looked like heading in the same
direction in the first few months. However, a significant correction in the last eight
months wiped out most of the gains. The white metal ended the year eight per cent higher
in the Indian market. Globally, it was down nine per cent. Again, the rupee came to the
rescue.

If you have gold, stay invested, increase its share in the total portfolio to 10-15 per cent,
as this is the time to buy gold, though gradually,' said Rajesh Iyer, head - products and
research, Kotak Wealth Management.
For equities, Iyer felt though valuations might be looking cheaper, headwinds were still
stronger. For commodities, the general outlook is not that attractive, but prices are seen to
be near the bottom.
Ajit Dayal, director at Quantum Asset Management, advises those who have appetite for
equities: 'Investors should seek shelter in companies with low or zero debt and in fixed
deposits with safe companies, preferably public sector banks.'
He also supports gold like most others: 'We always recommend gold as a part of the
portfolio. Our eternal recommendation is to invest in gold. The precise mix of equity,
fixed income and gold, either directly or via mutual fund investments, is a function of
every investor's needs, the time horizons, and the ability to withstand sharp and sudden
erosions in investments.'

Gold has given positive returns over the last decade. According to Sudakshina
Unnikrishnan, vice-president, commodities research, Barclays Capital, 'The key factors
that will determine support levels of the gold market is whether exchange-traded
products' holdings remain relatively stable and physical demand responds to much lower
prices.
In the longer term, gold still possesses structural pillars of support in an environment of
negative real interest rates and rising inflationary pressures, as well as continued central
bank buying. We remain positive on gold prices for 2012, holding an annual average
forecast of $2,000/oz.'
Staying invested in gold has more reasons. According to data by the World Gold Council,
'It's estimated gold bullion holdings by the end of 2010 accounted for just one per cent of
total assets under management globally.' This means there is still scope to invest in the
yellow metal.