Sunday, July 28, 2013

Gold/Precious Metals companies

Last few days seeing the kind of downfall in gold/precious metal companies reminds me of the temptation i had to buy gold companies a few months back. As you can see from below chart gitanjali gems lost 85 % of value in a span of one month. Imagine the plight of retail investors who had invested in this stock and lost money. A couple of months back i had analyzed few gold/precious metal selling companies and thought it would be a good investment choice. I thought of investing in Thangamayil jewellery but stayed back at the last minute since i was not sure of one aspect in business..i.e the buying interest of public. Gold is considered as a very good investment in India  However with the changing demographics in india the general public might slowly move away from buying since it might not excite younger generation[this was an assumption].  Also i did observe that lot of banks & financial institutions started marketing about Akshaya trithiya which made people situp and notice to buy gold[ I was never aware of Akshaya Trithiya in my childhood].So i felt these marketing strategies are helping companies to survive and it is a luxury item. In case of recession the buying of gold might be impacted and of course not the value of gold. So i dropped out at the last moment and instead bought a gold etf[which is linked to price of gold].

I don't say i am correct in guessing the downfall[first of all i didnt predict any downfall of gold companies]. I was not too sure of companies business strategies and so refrained from buying. However one lesson which i learn now is the regulatory change can impact gold companies in India and you need to understand this risk  before investing in gold companies.

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