New Delhi, March 17: While the falling markets have left investors jittery, there is cheer on their faces when it comes to their gold investments. Since January 11, 2008, while the Sensex has declined by 29 per cent, gold has seen its price rising by 19 per cent and stands tall at Rs 13,495 per 10 grams in India. According to Rajan Mehta, executive director, Benchmark AMC (which has a Gold ETF running), “It goes with our study that suggests that gold has a negative correlation of 0.1 with Nifty and so it acts as a good hedge against equity.”

Gold prices are majorly determined by demand in the US and over the past few months, when interest rates in the US have been falling, the dollar has weakened leading to a rise in gold investment. According to Anup Maheshwari, head of equities and corporate strategy, DSP Merrill Lynch AMC (which has a world gold fund running), “The weakening of the dollar with rising interest rates against other major currencies has led to the rise in gold prices. Also with the lack of a strong alternative currency, gold has gained prominence.” Since January 11, the dollar has weakened against the yen and the euro by 13.3 per cent and 6.7 per cent respectively. This has increased the impetus for investing in gold.

Also gold acts as a potential hedge against inflation and when interest rates in the US have come down from 5.25 per cent to 3 per cent now, with higher US inflation figures hovering a little above 4 per cent, gold becomes a better investment against other interest earning instruments. According to Bhargava Vaidya, a gold analyst, “The primary reason for the rise of gold is the weakening of the dollar which has been supplemented by the run in platinum prices and the steam in crude prices.”

The market is anticipating another rate cut by the Federal Reserve tomorrow. This may act as a thrust for higher demand in gold, leading to a price rise, but the market seems to have already discounted that factor as gold prices have risen by 3.6 per cent since Friday. “Though over the 2-3 years term, we are bullish on gold prices moving up, in the short run we expect a slight correction as the prices have risen sharply,” said Maheshwari.

Since January 11, 2008, the return generated by the Gold Benchmark exchange traded scheme (BeES) has been 14.5 per cent and the return generated by the DSP Merrill Lynch World Gold Fund investing in mining companies has been 11.7 per cent. This stands tall against the negative return of 29 per cent generated by the Sensex over the same period.