It indeeed is a very opportune time to say the Financial version of the rather popular “Every Dog Has Its Day”qoute.The adage goes like ” EVERY ASSET CLASS HAS ITS TIME”.The Dog a.k.a Asset Class in this case happens to be The Glittering Gold
The sacred element which has been one of the most primitive forms of currency before the so called Dollar and Rupees were minted.Another (IN)famous adage linked with Gold goes like “All That Glitters is Not Gold”.But the so called economic slowdown or the much recession has even belied the adage.Today,when i see all around me, I have to say “All That Glitters Right Now Is Gold”.Beg to Differ!!Let me help the matters by saying that Gold is the only asset that has given positive returns(leaving the debt instruments that is).
It is presently trading just off its near highs,which it touched in march last year.The Physical Gold price chart indeed looks impressive,which i received courtesy @sohamdas.Soham indeed is still bullish on Physical Gold and that’s what he had to say when i asked his opinion on “Is a Gold Bubble Forming Up”, “$GLD is giving me that look,which look you say?That toppy,crashy kind of look.It has put in a top,& failed to breach it.“
Looking at the chart made me re-think if gold as an asset class will sustain its upward movement.Call it intution or all the negative vibes around,I could not digest the fact and hence came my prediction A Gold Bubble is indeed lurking in the dark.Asset Classes especially the physical ones have a tendency to follow a cyclic pattern.Every sharp upward spike signals a downward spiral.With The Stock Markets in turmoil,Gold became the obvious choice for investors all around to park their funds.And Gold Kept scaling new peaks by the day.But such high prices have forced people mainly in indian subcontinent to post pone new purchases.They are rather using their existing Gold Reserves for marriages or functions.I dont have to say it but Gold still remains the prime commodity exchanged in marriages specially in India.
Gold as an asset class gained importance after the 2 world war when Asia and Europe were devastated and US was as safe as a vanilla Govt. Bill.In order to support the Asia and Europe economies a decision was taken at Breton Woods under which it was decided that US would buy gold at 35$ per ounce from anywhere in the world.It was at that time that GOLD gained global position as an asset class.Slowly the economies stabilised and gold also surged.It was followed by 2 oil crises in 70′s and slowdown in US economy.A lot of Punters predicted that US would have to convert its own Stock of GOLD into US dollars.This led to another frenzy and Gold Prices new heights.
Gold as an asset class from 70′s to 80′s touched almost the 850$ mark giving a positive return of 30% per year.Then as the economy improved Gold also stabilised to some extent.It was at levels of 250$ per ounce till 2005 but again it has jumped to astronomic height
Now the Question is this , Is it because of the demand in gold.The simple answer is NO.The testimony comes from the data from various jewelery associations in INDIA which is world’ s largest gold consumer( The gold in indian households is 10 times the GOLD which US govt. holds)
The answer lies in SPECULATION in ETFs and exchanges.Gold was importnt earlier but not as easily tradeable.it was used for making currencies also but then it was put off considering its hight density( a cubic foot of gold weights almost same as maruti 800)…i.e half a tonne…..and it is damn expensive…..
This tradable version of Gold Asset Class has catapulted it to the heights that we see now.But the question is for how long would this rally sustain.OIL plunged from 147$ to 40$ in 4 months or so as a result of slowdown and also speculation dying out eventually.I seriously feel the same could happen very soon for GOLD too
GOLD more than anything has been a desirable commodity specially in India.It infact as much emotional value as an Investment Tool.But the actual thing is that now prices of Gold are not being decided by these people.It is now being decided by Fund managers .
Metals like Silver, Platinum are also giving tough competition to gold.So the scenario of such high gold prices lasting for too long looks a little nebulous to me.I may be wrong and the opinions presented here are nothing but just another perspective.Please do not consider this as an investment advice.But yes,if you think alike or otherwise,please do add your thoughts in the comments section.The more insights,the better learning it is for me.Do subscribe to the feeds if you like what i write,i will send in goodies to all who add comments if at all we do have a gold bubble opening up:-)
Information Source: (ET, Wiki) and Compiled by Manrag-My TARP(Trouble Risk Asset Partner):-)