Oct 26, 2009

Why Should I buy Gold?

All of us find reasons before making any kind of investments. A couple of days ago, I was in the same dilemma and I was asking myself the reasons why I should buy Gold. Here, I am listing a few of them that I had in my mind to justify my thought of investing in gold and also, while browsing on the internet, I came across some interesting reasons behind why at all should one invest in gold. However, let me warn you that I do not have any trading interest in gold, but do have an investment interest in a company called Deccan Gold which is the only gold company listed in India. Here are the reasons:
1. According to experts, the total world gold production is decreasing. I was surprised ? increasing selling prices make it attractive to search so production should increase. This is what happens in theory, but it is getting to be more difficult to prospect, mine and produce gold.

2. The gestation period even for gold which is spotted is quite long. According to some experts it is as high as 10 years. Hence gold mining companies? prices go up over long periods and in a lumpy kind of a fashion. If gold is found it goes up, if mining starts prices go up, if production starts ? prices go up. So be careful while buying a gold mining company.

3. Chinese demand is likely to go through the roof. Very few people understand the Chinese economy. If the population does not trust its currency, they are likely to keep their money in gold! The Chinese government had banned the population from owning gold for a very long time. Obviously once the ban gets lifted buying will start (it happened in US if you remember). It may take 2-4 years by which time the retail network to sell gold to the whole Chinese population is set up. Once it is set up, prices will boom.
4. Indian demand is difficult to predict. However, there is some talk of Jewelers suicide in Kerala (with prices rising, consumption is going down, so shopkeepers are dying). However, there is a huge ?wannabe? population which will keep buying and chase prices! Be that as it may, selling may not be enough to exceed demand ? another cause for prices to go up.

5. Investment demand is high: All fresh bankers are busy selling gold mutual funds. This is a funny situation where the price is going up because the fund is buying. People are buying gold ETF/regular funds which is causing gold prices to go up! Case of tiger chasing its tail.

6. Governments attitude towards gold can be foolish and slow. The rich countries which have a lot of gold (including IMF) have a pact wherein they will not sell more than 400 Tonnes a year (not sure about the figure). This will restrict supply on the one hand, but mutual fund demand will drive the prices.

7. Bank relationship managers are pushing gold mutual funds, websites are screaming that gold is a good buy, people without understanding of interest, compounding, etc. think this is a great ideal This almost blind and noisy screaming will push prices high. Most fund managers are buying with a vengeance!

So, what is your view on investing in Gold? Your feedback is always appreciated. Do give your views in the Comments Section below.



Anonymous Gabe | freebloghelp.com said...

Great tips on buying gold. People who bought gold in the last year are pretty happy today.

October 27, 2009  

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