How to invest in gold.

Whenever there is a rise in gold prices, I will be inundated with questions like will the gold price increase more? shall I buy now? I tell them that my guess is as good as yours. It is not ethical on my part to commit anything when I don’t know the answer. Not just me or another jeweller, no one can answer this question. Only When the rates are high many people rush to buy. I saw many customers and even jewellers losing their precious money in 2011 when silver reached its all-time high. Today I have decided to share with everyone my views on gold prices and how to invest.

I am in this jewellery field for the past 2 decades and have closely watched the behaviour of many of my clients in terms of investing. I have seen many success stories and many failures also. Today let me share with you 3 dos and 1 don’t.

1- Honey bee

The first strategy is accumulating Gold regularly. Jewellery Savings scheme popularly know as Chit is very common among gold buyers. Every month the customer invests a fixed amount in these schemes and after stipulated time he buys jewellery. This is the best method to buy gold. You don’t have to follow gold rates, predict it’s movement. Just keep saving what you can afford and after a few years, you will have sufficient gold in your hands.

This behaviour can be compared with Honey bees. We all know how Honey bees collect the honey. They collect nectar from flowers and store it in their honey stomach, not their food stomach. Then it goes to honeycomb cell for future use.

A smart investor will save in small quantities and he will do it consistently.

2-Snakes

These category of people are little rare compared to the first type. These are very smart people who buy when rates are down. Gold rates even during the bull period will take a pause and then only move up. Rates will come down by 15-20% in the medium term. So if you follow rates closely and whenever there is a correction buy then. Every year when rates are down, these people will invest.

This behaviour can be compared to that of snake. Snakes can keep themselves alive and reproduce even when consuming less than 3% the amount of prey that a warmblooded animal of similar size would need. When opportunity presents itself it can gobble up on food.

A smart investor will invest when the opportunity arises.

3- Monkey – This is the only don’t in my 4 strategies. One of my close friend who bought gold for 500 per gram sold his gold when it reached 750 per gram citing 50% profits. He said he will buy when it comes down. He never was able to buy. People in India see Gold as goddess Lakshmi and they will hesitate to sell it. Most clients who come to our shop to sell gold do it to meet their down payment requirement for their new house. If you have a real emergency or need you can pledge or sell gold. But never try to trade in Gold.

We all would have heard about this metaphor  Monkey mind. Considering that we humans have around fifty thousand separate thoughts each day, all possibilities will be pondered upon. In such cases, an investor would be tempted with thoughts of selling now and buying later also. A smart investor will resist this temptation.

4- Cow

First 3 are strategies that I learned from my clients, the fourth strategy is something I had developed and this has helped many of my clients in decision making.

When the rates come down some of my customers will be in dilemma. They know the rates are quite favourable but out of fear that it will go down further, they will not buy. They will wait sometime. When the rates move up they will realise their mistake. They will confront a question, which is the lowest rates? How can u answer that?

To such clients, I tell them one thing. If you want to buy 3 units of Gold or Silver and not sure about rates, don’t worry buy at least 1 part. If the gold rates move further down or go up you can always average on either side.

The same strategy can be used to sell also.

This behaviour can be compared with how a Cow eats its food. It doesn’t eat in one go. A cow chews very little and swallows food. After filling up on grass, cows find a place to lie down to more thoroughly chew their food. This process of swallowing, “un-swallowing”, re-chewing, and re-swallowing is called “rumination,”

Likewise, a smart investor doesn’t sell or buy in one go. When in doubt he buys or sells at least in part.

Hope this blog clears at least some of your doubts and will help you in accumulating Gold with peace of mind.

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Rajesh Kumar Ragothaman

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