Gold has been a proven method of preserving value when a national currency was losing value. If your investments are valued in a depreciating currency, allocating a portion to gold assets is similar to a financial insurance policy.
Thought to be one of the first known metals, gold has been coveted throughout history for its beauty, scarcity, malleability, and uncanny resistance to rust and corrosion. Centuries ago, gold's unique combination of properties -- its sun-like colour, its soft hardness, and, especially, its imperviousness to decay and corruption -- imbued it with magical associations in the eyes of many. Because of these unique properties, gold has traditionally been the currency of choice for much of the world's population. The value of gold has transcended all national, political, and cultural borders, making it the ideal currency.
In spite of the convergence of diamond and palladium, the demand for gold jewellery has seen a regular growth year-on-year. Countries primarily responsible for this growth are India, China, Italy, Turkey and the USA. In the last 3 years, the climb in the price of gold above Rs.20, 000/- in India.
Factors affecting gold prices in last 3 years
If we analyse the track record of gold in the past three years, we can conclude that gold prices have seen a steady and impressive northward growth.
In January 2002, gold prices per 10 gm stood at Rs 5,453. By November 2004, the price had gone up to Rs 7,005. The year 2004 has indeed been a great year for gold.
There has been a substantial increase in gold prices, but this has not dampened consumers' inclination towards investments in gold. In fact, investors have begun to recognise the effectiveness of gold as an efficient savings vehicle and an alternate asset class.
Demand for gold for the purpose of investment has outpaced the demand for the yellow metal for jewellery in 2004. Indians purchased 74.0 tonnes of gold for investment from January to September 2004, while it was 67.8 tonnes during the same period in 2003.
Reasons to say YES to Gold
- The dollar is weak and getting weaker due to national economic policies which don't appear to have an end.
- Gold price appreciation makes up for lost interest, especially in a bull market.
- The 5 five years are the beginning of a major increase in rates of the gold in India from Rs.6000 to Rs.20000 +
- Central banks in several countries have stated their intent to increase their gold holdings instead of selling.
- All gold funds are in a long term uptrend with bullion, most recently setting new all-time highs.
- The trend of commodity prices to increase is relative to gold price increases.
- Worldwide gold production is not matching consumption. The price will go up with demand.
- Most gold consumption is done in India and China and their demand is increasing with their increase in national wealth.
- Several gold funds reached all-time highs in 2007 and are still trending upward.
- The short position held by hedged gold funds is being methodically reduced.
Ways to invest in gold
- Gold bullion
- Gold coins
- Numismatic coins
- Gold certificates
- Gold futures and options
- Gold Mining stocks
- Jewellery
- Exchange Traded Funds (ETF)
- Gold Mutual funds
Reasons to say NO to Gold
- Gold doesn't pay income or interest.
- Except for the last five years, gold has been in a bear market after a peak in 1980.
- Central banks have tons of bullion which they occasionally threaten to sell.
- If you don't count the last five years, gold stocks have not done well.
- Since gold funds have made big moves over the past five years, it's time for them to drop back.
- Your broker probably won't recommend gold funds.
If you believe in 'buy low, sell high',
gold is still low, but climbing.
