New Delhi, April 22: The dramatic drop in domestic and international gold prices over the past 10 days has made investors confused and worried over the future of the precious yellow metal. The price decline that happened in April, the steepest in 30 years, has strongly impacted gold's appeal for the portfolio investors. Bankers say they received a barrage of panic calls from rich clients who have been persuaded to hold 2-10 per cent of their wealth in gold.For years now, gold has been in a parabolic move, but the recent plunge in gold price has wiped $1 trillion off the value of global reserves of the precious metal in just a matter of weeks. Rising from the low of $254 an ounce in 2001, the gold prices have surged to the peak of $1,920 in 2011. In hectic selling that began on April 12, the price has corrected from $1,580 an ounce to $1,380, dragging even other metals down. Silver too has sunk from $28 to $23, while copper is down from $7,500 to $7,100 a tonne. Analysts have termed it a bubble, in search of a pin.For a very long time, gold has been a safe haven in times of political and economic crisis. It is still the best bet for the worst of times, and as a hedge against high inflation. To some extent, the recent fall in the price of gold may reflect a decline in fears of imminent crisis and inflation. The World Gold Council (WGC) feels the recent plunge in gold prices is because of short-term traders in the futures market. According to Bank of America Merrill Lynch (BofA-ML), Cyprus' announcement to sell gold reserves was a key trigger behind the recent meltdown, as it raised concerns that other peripheral nations may follow suit. Some analysts point to a massive sale in gold reserves held by investment funds known as exchange traded funds, or ETFs, as well as the broader shift by investors back into equities. In the past week, over $2 billion has been pulled from the US-listed SPDR Gold Trust, the world's biggest bullion-backed ETF.However, things are not pretty bad for anyone who bought gold in April 2003 as the yellow metal has done far better than an average sharemarket investor. Notwithstanding the current decline, gold is still up 320 per cent. The price volatility reflects the need of a cautious approach that investors in the yellow metal has to take in doing new things in the market. For consumers in India, the world's top gold consumer, accounting for 20 percent of global demand, the fall in prices could not have come at a better time than the present one. A lot of them are considering it to be once in a lifetime opportunity. Analysts say the ongoing wedding season in India and the upcoming Akshaya Tritiya festival, could further propel the demand. Indians don't purchase gold just for festive occasions as a lot of people sending the government's inability to keep gold prices under control have been putting their money into gold.“People are a little worried about inflation and they are moving to gold as an asset, especially in rural areas. The fact that people are investing so much in gold recently suggests we have to give them more faith in financial assets than we have right now,” Chief Economic Advisor Raghuram Rajan had said. Undoubtedly, the current fall presents lots of opportunities as a lot of Indian consumers were waiting on the sidelines for the price correction to happen. Here are some tips to benefit from the gold price crash: A price correction can be a temporary phaseGold, which has risen steadily for many years now, is setting itself up for a correction. Once profit taking in the yellow metals settles down, it is gold's fundamentals as a commodity that will set the long-term direction for prices.Gold fundamentalsIn the wake of gold's recent volatility, the World Gold Council said it believes that despite the current turbulence, the long term fundamentals of the gold market remain intact. Still a solid inflationary hedgeGold often moves inversely to major national currencies like the U.S. dollar. This is largely a reflection of falling confidence in inflationary policies of central banks. Given that gold retains it value, people buy it if they fear inflation is eroding their currency.Can be easily converted to cashOwning gold gives you the advantage of turning the yellow metal in times of need. Gold can be easily converted into cash anywhere in the world.Best bet to diversify your investment portfolioAdding different securities to your portfolio is important way to diversity your entire portfolio of investments. Moreover, because gold often moves inversely to the stock market and currency values, it provides an especially effective way to diversify.
