Gold the ethereal shiny metal has been in the spotlight of late. We Indians have a fairly complex equation with gold. In the Western world it is viewed just as any other asset.In India it has a lot of symbolic value, parents gift their daughters on their wedding day. Gold remains the most popular gift on Diwali. In essence, gold is not traded frequently and mostly owned in physical form.
There has been a shift in recent years. Securitazion of gold has made it more accessible and to some extent reduced its elusiveness. Gold exchange traded funds (ETF's) allows you to own gold without physically owning it. Gold is now a financial asset which is traded on an exchange along with its derivative products like futures etc..
The real estate bubble burst and the equity markets collapsed in 2008. Oil witnessed a three fold increase in price but has now collapsed to reality. During this entire period gold has been quietly rising. Now when you compare returns across asset classes gold has outperformed. Now a lot of money is chasing gold, the quintessential safe haven.
I am no expert, but I can identify euphoria. The gold rush seems to be reaching the crescendo of madness, what with all the small players wanting a piece of the action. I see the headline of newspaper in the future reading, "Now its gold.....
The graph above is very interesting. The price from 1978-80 went from $200 to $820. The nature of the current incline seems to be following a similar trajectory.
8 comments:
yeah n probly this will be the worst af all...it will leave a telling psychological impact when it does happen!
India will most probably survive cause we own gold in the form of jewelery.
There is no fool like a Gold Fool...i guess anyone who wud have bought Gold for wedding purpose or shagun wud have more than one reason to smile...
Even i believe it will survive..
The price will not survive, but that doesn't matter since we don't ever sell; unless its an emergency..
Well...I'm not really sure if we can treat crude n gold in similar fashion !!...... I believe that crude is strongly coupled with the world economy than gold is......One of the reason for the crude bubble was the wrongly anticipated rapid growth which translates to higher demand for crude (as it is an integral part for growth)... a sudden deflation of the dream growth translated into crashing of the crude to the 06-07 levels (around that time).... One thing in common to gold n crude is that the spot prices of both are determined by future prices....now coming to gold, prices are going up as an investment safe heaven (primarily demand supply taking prices up).
One argument in your favour is that, if an asset is over priced and its needs a correction which will being it to a fair value..... but the asset price is determined by the returns it will give i.e in relation with other assets available.... as as of now the gold is expected to provide better returns than most because of which the demand is increasing taking up the price..... the prices can come down if there are other assets providing better returns... might be stocks or bonds .... which might translate into economy improving..... but when economy is doing well lot of ppl do invest in gold.
On the other side if the economy further deteriorates, then the demand for gold might increase further !!
moral of the story....gold prices might need correction but its not a bubble which will burst...... will this argument is based on my limited brain and limited knowledge...... 3 months down this argument might sound stupid :).. who know wats in store
Moral of the story by me : Sarabraj, stop commenting and start blogging ... LOL
As the price increase the demand for physical gold will fall. There will come a point when the price is totally driven by speculation in the derivatives market. Something similar happened to crude as well, and the prices are there for us to see now.
I have updated the article with a graph. The price pattern seems very interesting, or maybe i am 'seeing' a pattern.
Interesting views on possible gold bubble..
http://www.gold-eagle.com/editorials_05/janszen101606.html
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