F A B technique in Gold investing.


Wishing you all a very happy new year.

Feature Advantage Benefit
Whenever you buy a product, you will have to understand the features they have and the advantages it brings and the benefit the user gets
All advertisements in the TV/ Media will always talk about this technique.
The widely advertised toothpaste Ads use this very effectively. Be it a paste or a brush you can see this. Let us take an example.
You see the ad where one talks about salt  in tooth paste.
Though this is not common salt, they are Sodium Flouride and Stannous flouride.
The advantages of having these salts in the tooth paste are that
It protects Gums, Prevents formation of Tartar and Protects teeth
Fresh mouth, no bad breath, clean teeth.
This FAB technique can be used in investing also.
In investing, apart from FAB, you also need to understand the risk involved in investing.
Each investing idea can be filtered through the FAB technique and checked for suitability of the investors.
Let us discuss one of the Asset , Gold.
Gold is primarily an asset class which is used as a hedge against inflation.
Secondly, this is the reference point for international trade. In the earlier days, this was the universal currency. However over the decades, US dollar has without doubt gained supremacy for international trade.
Whenever there is weakness in US dollar, Gold gains in value.
Many people buy Gold for investment, Some to flaunt their wealth and sometimes is used to show ones social status. Gold in such cases is combined with Gems and Diamonds,
Gold can be purchased in any one of the following ways
1; Gold bar
2. Gold coin
3. Gold jewellery
4. Gold Mutual funds
5. Gold ETF
6. E Gold through commodity exchange
7. Sovereign Gold bonds issued by the Government of India.
While the first three on in physical form, the others are in electronic form. Given below is a comparative FAB details of the above mode of investing in Gold.
Inline images 1
Should one invest in Gold?
Generally Indian markets and Gold have a negative correlation.  +1 on correlation indiex indicates that it is positively correlated and -1 negatively correlated. ( Which means, when sensex goes up, Gold goes down)
However in the last 8 years the correlation has been close to zero. This means both have remained close the zero correlation but in percentage terms. Gold has given a 300% returns compared to Sensex which is 120%
Also the USD and Gold have a negative correlation as seen and the correlation has come down in the last four, five years. See the chart. Blue line is Gold and the orange line is USD
Inline images 3
Inline images 2
It is good to have have Gold in one’s investment portfolio and ideal to have around 10 % of the total investment as GOLD.
As the geo political risks across the globe increases, Gold will be a hedge and it is therefore useful.
Also when India was in deep financial crisis, in 1991, We did pledge gold with IMF
Use the FAB technique and choose the option which you think suits you.
For any clarifications do contact me.
Thanks & regards

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