More reasons to invest in gold

Less than three months ago I wrote in this blog about the trend of gold prices and suggested it as an investment opportunity at times of recession and unpredictable market situations affecting stock prices and traditional investment channels. In the article titled Invest in gold to beat inflation, I verified the significance of investment in gold quoting past instances. For example, since April 2001 the price of gold more than tripled, the highest 2009 price was on February 20, 2009 at $989, fluctuating between $870 and $993 till September first week when gold prices broke the symbolic barrier of $1000 an ounce. Now it has hit yet another milestone of $1,174 on Monday.

The percentage rise in gold prices from September 2008 to September 2009 was 21%. But now, in less than three months gold prices jumped up 17.4%, which will work out to roughly 70% on an annualized basis. But do not expect such an unrealistic rise, though you can safely expect around 20% increase in the coming one year.

Generally, the price of gold increases around this period of the year in Asian countries because of the marriage season for which winter months are preferred. The price of gold in India has already hit a record high of Rs 17,557 per 10 grams. One of the reasons analysts point out is that the dollar fell on Monday after comments from a U.S. Federal Reserve official that U.S. monetary policy would stay ultra-loose for a prolonged period. As everyone knows the weak dollar enhances gold's appeal as an alternative investment. Also the rising crude prices boost gold's appeal as an inflation hedge, most analysts feel.

There are more reasons why there can be a further spurt in prices as the coming seasons of Christmas and New Year also prompt people to buy more gold jewelry as a traditional way of celebration. If there is no panic selling by business investors because of their urge for profit-taking, or other unseen reasons, the trend is expected to continue at least till February 2010.