Risk free asset

The love for gold has always been there among Indians. Gold jewellery even now is considered to be an asset as well as a status symbol. Jewellery constitutes two thirds of annual gold demand. And India is the largest consumer, accounting to 27% in the year 2009 followed by China and USA.

But today, in modern world the financial planners suggest to buy gold as an alternative investment. Buying gold as a commodity is considered to be a true investment. It can be buying gold bars and coins or may be through exchange traded products and certificates which eliminates the risk of physical possession.

I think a good portfolio must have certain degree of diversification. Gold in contrast to stocks is considered to be a risk free asset by many investors. One should invest some in gold as it is usually inversely correlated to stocks.

Gold has a proved pattern of climbing up the price ladder consistently and of course it has no risk of being bankrupt like Lehman brothers or like other too big to fail firms.

Here is a graphical presentation of gold price over the past 5 years:-