Sunday, 8 April 2012

Should You Invest In Gold?

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"Never Miss a Golden Opportunity".” "Now is the Right time to invest in Gold". “Investment in Gold is the safest of available options”. Every analyst or gold bug is of the same opinion that Gold Rally to continue for few more years.
There is so much hype about this Yellow Metal that, I could be tagged as “Silly”, If  I say the prices of gold are at its peak and it is not the right time to invest in gold.
Proven strategy “Buy low and sell High”,  Is Common Man applying this strategy, when it comes to investing in Gold? Common man thinks investment in Gold is Safe heaven. Ask them why? The answer you get to hear is, “Because everybody else thinks the same”.   This thought process coupled with weak interest rates, fear of recession, tumbling stocks is driving the investors to flock towards Gold and there by driving the Gold prices higher and higher
Over the last 10 years or so, Gold is moving in only one direction that is UP. Analyst Predict that it will continue for few more years. When Sensex was trading at 21K, they predicted that Sensex will reach 30K.  Rest is history, everybody knows it.
Gold in this period has increased by more than 500%. Does it sound like warning bell? Is the Golden Bubble About To BURST? I may not have the Right answer however here are few reason why I think one should stay away from Gold.
  • Is Gold available at fair price:  Price of Gold was 250$ per ounce in 1999. Inflation adjusted price should not be more than 400$. Is 1500$ per ounce justified? Are you paying fair price?
  • Real Value of Gold:  It is yellow pretty looking metal. Gold has been woman’s favorite when it comes to sparkling jewelry. In addition to this gold due to its chemical properties is used by aviation and Satellite manufacturers. There could be other hidden values that I am not aware of.  You invest in Gold and keep it in safety lockers for years and years with one hope of selling at higher than your purchase price.
  • We are on Big Bubble: For the last 10 years Gold has been on steady rise. Investing your money at Peak or Life Time High leaves very little room for profits.  Betting on Gold at this price is very risky. Investing in Gold was an opportunity 10 Years ago, not now. In case economy starts improving, people will begin to exit out of gold and invest into other sectors. Remember - People who invested in stocks when Sensex @ 21k lost their fortune. 
  • Demand and Supply: One side of the story is, Gold is available in limited quantity. Other side of the story is, many Gold Mining Companies are on hunt of new Gold. This in turn might create more supply of Gold there by softening the prices.
  • There are better investment options: Blue Chip stocks are trading at fair value. Investors with long-term horizon can utilize this opportunity and buy Good Stocks at mouth watering price.
Final Take Away:
As per Gold bugs, investment in Gold is the best of the options available. It is interesting to note that historically stocks have outperformed any other investment. This does not mean that one should invest all their money in stocks. Diversify your investment into different sectors Real Estate, Gold, etc. As of today I personally think Gold from investment perspective is overpriced
Are you betting on Gold?


Anonymous said...

Investment in Gold is almost a hedge against Inflation -just that. When stocks go up Gold prices go up only little. When stocks fall there is a flight to safety - AAA Bonds (Ahem..) and Gold and Gold rises.

Gold from 1973 levels is still not a true hedge against inflation. It has to be around $1980 per ounce to be a perfect inflation hedge.

Gold is indeed forever. One may not necessarily make huge profits buying Gold but that part of the portfolio will be shielded from the downward impact of Inflation. A small exposure to Gold 5% to 8% exposure to Gold is still a good idea. However this must be in the form of ETFs/e-gold. Bars and Jewelery do not count!

WealthUCreate said...

You are right when you say, hedge against inflation. More over on personal front, i am not very keen on Gold. Purely from investment perspective, yes i may invest to some extent when Gold is available at fair value.

Now it way overpriced

Sujatha Sathya said...

hmmm....this post clarified a few doubts i had. good one

WealthUCreate said...

Thank You Sujatha.... Fact - Talk about Gold, they have only one answer, it will never come down.:). I personally was never able to differentiate true gold and artificial Gold (Gold Look Alike). Both glitter ...

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