Gold has witnessed smart recovery and there is no reason why you shouldn’t buy some this Diwali.

After a volatile 2012-13, there appears a silver lining on the yellow metal — Gold has witnessed a smart recovery over the last six months. And there is no reason why you shouldn’t buy some this Diwali

With Diwali round the corner, one of the most auspicious gold purchasing occasions is back in the country. While gold prices have climbed up yet again after having witnessed a sharp correction in the first few months of this calendar year, gold buyers have been left thinking if they should buy gold at these levels and if the prices will continue to harden from current levels. Even as the caution prevails, investors must not forget or deviate much from their asset allocation strategy and considering that we continue to live in uncertain environment gold definitely is an asset that deserves some allocation from investors as it preserves its value and also acts as a hedge against inflation and rupee depreciation.

If calendar year 2012 was the worst year for gold in terms of returns generated for investors in the last 8 years, the beginning of 2013 too was shaky as gold prices fell sharply following a revival in the equity markets. Last six months, however, have been very uncertain —rupee depreciated to record low levels, there was volatility across the markets worldwide following the news of tapering of quantitative easing by United States and geopolitical concerns with relation to Syria. Amid these concerns, gold in rupee terms has witnessed a smart recovery and over the last six months its prices have grown by over 15 per cent.

At Rs 31,840 per 10 grams (closing price of gold standard in Mumbai on Friday) gold is trading at a level that is close to what it was trading a year ago but the returns generated by them during this calendar (between January and October 25) has crossed 13 per cent, thanks to the surge in prices over the last six months. While the year-on-year change in price is only 3.8 per cent, the volatility in the price over the last one year means that if you had adopted the systematic investment plan route to invest in gold and had invested an equal amount on 15th of every month, then you would be sitting on a comfortable return of close to 9 per cent.

A comparison of returns generated by various asset classes over the last six month shows gold outperforming equities and all other asset classes except for international equities. While gold funds on an average have generated a return of 13 per cent, the BSE Sensex in the same period rose by 8 per cent and the average return generated by large cap equity schemes stood at 5.9 per cent. International equity schemes however generated an average return of 17.4 per cent in the same period.