Continue to GO for GOLD !

Ever since I was convinced that USA stood for Unintelligently Searching for Answers,I have been convinced that ‘Gold’ has to be in your Portfolio

Check this blog of mine on October 23,3008 http://www.gauravblog.com/?p=263 where the Title warns whether the US $ will become Tissue paper ! and the Blog concludes with me recommending to Go for Gold

Gold has soared to US $ 976/oz and in India it’s crossed a record Rs 15500/ten grams and close to Rs 18000 for a Ten Gram Gold Coin of 99.99 purity…Just about 18 months ago,a similar coin was quoted below Rs 11000 !

With an explosion of CDOs and CDSs defaults in Trillions of Dollars expected this Year to further crash Global Economies,the US Dollar is poised to decline significantly against major world currencies

Gold was given a US $ 35/oz value in 1944 when the Bretton Woods Agreement came about and where Gold was the World Standard and Reserve Currency.In 1971 this Agreement was abandoned and the US Dollar became the World Reserve Currency….Adjusting for Inflation Gold should now have quoted at US $ 2200/oz !

Dollar goes Down,Gold Goes UP…that’s the simple equation really

Gold is marching towards US $ 2500/oz in the next two years ….Reason to be bullish on Gold are many

  • Demand swells…Contrarions have been buying Gold for some time now…Public are now seen climbing on to this ‘Gold Rush’ bandwagon…Huge Demand is seen not only in USA but even in China and India…The World Gold Council has reported that in Q 3 ended September 30,2008,Over US $ 6.5 Billion was spend on 232.1 Tonnes of Gold Coins and Bars….highest in Ten Years and up 121% from the previous year…This figure will get even more pronounced this year…Infact since July 2008,the US Mint has stopped selling the American Eagle Gold Coins as there is a shortage and a huge pent up demand 
  • There have not been any huge Gold Discoveries in Recent Times
  • Other Asset Classes,especially Equity,are being decimated and further decimation is indicated as the crisis deepens and widens…await the CDO’s and CDS’s Derivatives default Explosion…. and in times of such crisis and great uncertainty,Investors are turning to Safety and Gold
  • Gold Exchange Traded Funds are creating Demand for Millions of Ounces of Physical Gold 
  • US Dollar is declining in Value and Gold has already defacto become the World’s Currency.In fact ,since 1971,the Dollar has depreciated over 95% against Gold ! and over even lost over 90 % of it’s purchasing power against Hard currencies like the Swiss Franc and the DM,before the Euro came about.A Rising Dollar in the Longer term !? Unlikely…Scenario of Lower Interest rates and Trade and Budget Deficits will continue to put pressure…would you believe it that USA has never had a Trade surplus since mid 1970s ! 
  • Gold cannot be printed like Currency Notes…so Gold as an asset does not create any liabilities…it holds it’s monetary value over time
  • The more USA resorts to printing Currency to fund it’s crisis…in other words more the bail-outs, more Inflationary Pressures will be seen and the US Dollar will decline further in Value. M 3,that measures Currency in circulation, has shown an average 8% annual growth rate in the last 15 years ! USA,to avoid Defaulting on Sovereign Debt,would have no option but to print more currency. 
  • Unlike 1930s and 1970s,the World Stage now has major Global Players other than just  USA…the Demand for Gold will be stronger 
  • Since 2005 all World Currencies have been depreciating against Gold 
  • If Conflicts escalate in the Middle East,Afghanistan and other sensitive global pressure points,Gold will simply surge

So in India,how do you create exposure to Gold ? You could

  • Buy Physical Gold…99.95 Purity Coins from Jewellers or more expensive ( by 15% ) 99.99 Purity Coins & Bars from Banks
  • Go Long on Gold by Purchasing Contracts on the Commodities Exchanges
  • Invest in the Secondary Stock Markets in Listed Units of Gold Exchange Traded Funds (ETFs)
  • Invest in the Secondary Stock Markets in Gold Mining Companies…after assessing Price v/s Value

One more Advice….Silver too will ride Piggy back on Gold…you could see Silver racing to US $ 75/oz in the next two years…so you could buy into Silver too 

As as Asset Class Allocation,Bullion would constitute a sub asset class under Alternative Investments…in times like these,adopting a integrated portfolio strategy that would involve tactical play,rather than solely a strategic one is clearly called for

Depending on your Risk Profile and the Risk to Return trade off create an appropriate Bullion Exposure in your Portfolio…atleast 10%…going up to maybe even 20% of your overall portfolio…if it means rebalancing your portfolio,then Do it !

Contrarions have already taken home over 50% appreciation in Gold in the past eighteen months…you can yet ride another 100% run atleast in the next two years..it is strongly indicated 

Continue to GO for GOLD !  

4 thoughts on “Continue to GO for GOLD !

  1. Everyone is rushing for gold. A contrarian indicator?

    I think one needs to be careful. Buying gold is not an investment, it is a dead (non-income producing) asset.

    In spite of so much money flooded into the US financial system, banks refuse to lend money. They may be printing money but it is not coming to the market and people/govts world over are investing in US bonds at near-zero interest rate. What does it tells us? Money may be printed but it will stay back in vaults and people have faith in the US financial system. Then, where is the question of inflation. This is only a short duration pain (max 2 years) for the excesses committed over the last 8 years. A good opportunity to short gold 6 months from now?

  2. Techtonic Financial Shifts are occurring in the Global Economy..Currencies are Volatile as current exchange rate mechanisms play their role out….To my Mind,Gold is already becoming the world’s reserve currency as faith in the US Dollar is ebbing fast…Gold will part protect your portfolio value…also when you have Americans investing in near Zero Rate Government Paper,it’s only a choice between choosing a lesser Devil really to try and protect current monetary value !…The Wise ones are already into other currencies…..because everywhere else they have invested in USA has decimated or shrunk sharply…It’s going to take much more than Two years for USA to recover…they are yet running their course of pain…as for their Financial System…it’s clearly being propped up…but for how long ! the more Monies that are thrown out in Bail-outs the better scenario to create some Inflation,after this brief deflationary spiral….watch what will unfold in USA over this year and next…it is scary…Silver and Gold are already proving to be the lifesaver rings to latch onto in these stormy times

    China has US $ 682 Billion of it’s resreves of US $ 1.8 Trillion in US Treasury…Two weks ago,the Chinese Premier,said no more Investment in US $!….USA continues to fund it’s deficits by printing more Dollars…M3 has shown an average increase of 8% annually in the last 15 years

    The Problem is huge and Real in USA and there is no Panacea to it….Gold clearly will beckon for a long time yet

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