For the love of gold

First the hard facts. The year 2000 opened with gold trading at Rs 4,360 per 10 grams. Since then, though, there has not been a single year when the price of gold has dipped in a calendar year. In fact, in aggregate terms, gold prices have surged seven times over the last 12 years, growing at a compounded annual rate of 17.5 per cent over the last 12 years — returns that no other asset class has been able to deliver.

Diwali is round the corner and traditionally, Indians have a tendency to step up buying gold during the festival season. However, the question on whether gold should be bought at current levels is something that has come up every year, with historical data indicating that those who buy in the run-up to the festival season have gained handsomely. The question comes up this year too, as gold is trading clearly above Rs 30,000 per 10 grams level.

Outlook for Gold

With no visible sight of economic and geo-political stability, there are bound to be uncertainties surrounding currencies, crude price, equity markets and pertaining on economies as a whole. In such a scenario, these conditions only augur well for the rise in price of gold. While traditionally, India has been the biggest consumer of gold, China has now overtaken India in terms of the demand for gold. In the quarter ended December 2011, the demand for gold from China stood at 190.9 tonnes as against the demand from India at 173 tonnes.

"With an increase in global uncertainty, the central banks around the world are accumulating more and more of gold and there is a flight to safety," said Sundeep Sikka, CEO, Reliance Mutual Fund. There are others who voice similar opinion. "I don't see it as gold going up but it is the value of money coming down. So as long as people are printing more and more money, I don't think the value of gold will come down," said Ritesh Jain, head of investments at Canara Robeco Mutual Fund.

... contd.

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