Trading in Gold
Of all the choice of investments available, can this yellow metal take pride of the place as a financial investment alternative option? Opinion on the subject of gold is divided, on several issues – are the yields from an investment in gold positive? Are its uses productive? Is the strain on the economy evident? Should gold be allowed to be brought into India freely for purposes of investment or otherwise? Well, yields or no yields, there is hardly an Indian household that can ignore gold and keep its entire savings in financial assets alone. Every investment has an intrinsic appeal to its holder and to suggest that hundreds of tones of gold is bought every year without regard to its economic value is to suggest that Indians don’t act rationally. The fact is, they do and probably do it better than others.
Indian’s faith in GOD and GOLD dates back to the Vedic times; they worshipped both.
According to the World Gold Council Report, India stands today as the world’s largest single market for gold consumption. In developing countries, people have often trusted gold as a better investment than bonds and stocks. Gold is an important and popular investment for many reasons:
* In many countries gold remains an integral part of social and religious customs, besides being the basic form of saving. Shakespeare called it ‘the saint – seducing gold’.
* Superstition about the healing powers of gold persists. Ayurvedic medicine in India recommends gold powder and pills for many ailments.
* Gold is indestructible. It does not tarnish and is also not corroded by acid – except by a mixture of nitric and hydrochloric acids.
* Gold has aesthetic appeal. Its beauty recommends it for ornament making above all other metals.
* Gold is so malleable that one ounce of the metal can be beaten into a sheet covering nearly a hundred square feet.
* Gold is so ductile that one ounce of it can be drawn into fifty miles of thin gold wire.
* Gold is an excellent conductor of electricity; a microscopic circuit of liquid gold ‘printed’ on a ceramic strip saves miles of wiring in a computer.
* Gold is so highly valued that a single smuggler can carry gold worth Rs.50 lac underneath his shirt.
* Gold is so dense that all the tones of gold, which has been estimated; to be mined through history could be transported by one single modern super tanker.
* Finally, gold is scam-free. So far, there have been no Mundra – type or Mehta – type scams in gold.
Apparently, gold is the only product, which has an investment as well as ornamental value. Going beyond the narrow logic of yield and maturity values, thus, the lure of this yellow metal continues.
How Suitable Are Gold For An Increase In My Investment?
A good investment is like an attractive bouquet – of diverse character, the key is in putting your money in all types of assets – gold included. Hoe much of your savings should you invest in any option depends on your risk appetite and wish list. While assessing the value of gold on a stand alone basis the point that needs emphasis is any investment is held on the basis of a “perceived value”. When stocks of infotech companies are bought at PE multiples of 60, the question often asked is “Are these stocks worth these kind of exorbitant prices”? If at a given time, the major investors think “yes”, the prices may rise further regardless of their book values. Any financial market player would tell you that what drives the market is not so much the fundamentals as the fancy of a particular scrip at a certain time in the minds of majority of investors. Gold as an investment has some distinct advantages:
* Gold’s negative correlation with other assets helps reduce the overall volatility of the portfolio. Such lower volatility leads to higher compounded rates of interest.
For those who have any doubts about gold’s credentials as an asset that beats the tide here are a few hard facts that should drive the point home. In the year 2002 gold prices have increased 23% while the FTSE has gone down by 27%, NASDAQ by 38%, Dow Jones by 18%, and BSE SENSEX has risen a paltry 4%.
* Gold provides the portfolio with intangible advantages such as providing hedge against financial and economic uncertainty.
Are Gold Suitable For Regular Income? No, Gold are not meant for regular income.
Since value-wise they are cumulated, you get a lump sum (whether profit or loss) at the time you sell or redeem it in the market place.
To What Extent Do Gold Protect Me Against Inflation? Gold has been popular in India because historically they acted as a good hedge against inflation. In that sense this metal have been more attractive than bank deposits or small savings product. Timothy Green, a well-known gold expert, reminds us of a historical truth: “The great strength of gold throughout history has not been that you make money by holding it, but rather you do not lose. That ought to remain its best credential”. A research study on gold established a remarkable consistency in the purchasing power of gold over four centuries.
Its purchasing power in the mid-twentieth century was found to be nearly the same as in the middle of the seventeenth century. You can safely invest in gold. But take care to keep your jewelry in bank lockers.