Gold investors are a concerned lot these days. The price of the yellow metal has been in a down trend recently. In the month of May, the gold price fell by about 10%. The main reason for this correction was the Reserve Bank of India's (RBI) decision to ease gold import norms. However, there is more negative news in store. Keeping in mind the fall in global gold prices too, the Indian government has cut the import tariff value on gold from US$ 424 per 10 grams to US$ 408 per 10 grams. The import tariff value is the base price at which the customs duty on gold is calculated to prevent under-invoicing. Thus expectations are high that the new government will cut the import duty on gold in the upcoming budget. These measures would certainly result in more gold imports into the country.

Also, the months from June to September have traditionally witnessed weak demand for gold. All these factors have led many market participants to conclude that the price could fall another 5-10% over the next one to two months. Should these factors affect investors' allocation to Gold'? We don't think so. Gold should form 10-15% of an investor's portfolio as it is an effective portfolio diversifier and acts as a good hedge against inflation. Gold is a good long term investment and investors should not speculate on the price based on short term factors.