GOLD has been outshining all asset classes recently. In the midst of uncertain financial markets around the world, gold is clearly being seen as a safe haven right now. In 2009 alone, gold has returned 6 per cent till now.

Gold ETFs have been shining through all this. However, this rally has not translated into good returns for gold mining companies, as is evident from the poor performance of gold mutual funds. Gold mutual funds invest in the stocks of gold mining companies.

Returns generated by gold ETFs (which invest in physical gold) are much higher than returns of gold mutual funds. ETFs have given 29 per cent returns in 2008 and over 8 per cent till now in 2009. As against that, gold mutual funds have given negative returns.

(absolute returns as on Feb 25, 2009)

(absolute returns as on Feb 25, 2009)

Sanjeev Shah of Benchmark AMC explains that investing in gold mining companies is just like investing in equities. The other thing he explains, "It is not as easy for miners to collect gold. It is very expensive business. Nobody knows the exact numbers, but a lot of people say that most of the gold miners have actually sold gold forward. So if the gold prices go up they are the losers.”

So is it a good time to invest in gold ETFs now?

For traders
Analysts expect between 10-20 per cent return in 2009.

For investors

"Ideally, an investor should have 15-20 per cent allocation in gold. If you have more than 20 per cent you can consider selling and if you think you allocation is not enough, it’s time to buy and balance your portfolio", says Sandeep Shanbhag, Director Wonderland Investments. HE exaplains, "Just because an asset class is performing exceedingly well, it doesn’t mean you park all of your money in that asset. There always has to be a balanced exposure to each asset class."

Illustration: Abhijeet Kini

Read: Gold touches 7-month high; should you still buy?

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