Courtsey:Dr.Krishna
I am writing this article on Gold after receiving many enquiries from investors on "Gold as new investment opportunity". Gold is now trading around Rs 15,650 per 10 gram. Gold now suddenly caught the attention of herd investors when value investors are selling their holdings. Another classic Herd Mentality (Reliance Power IPO) is now on the cards.
Gold was traded below Rs 12,000 levels per 10 gram for more than 1 year but no investor asked me about gold as investment. Now Gold is trading in the above 15,500 zone but people are now asking me about investment opportunities in the gold and my opinion on the target of 30,000 levels. This incident once again illustrated the "Herd mentality" of investors. These people will never learn in their life about the "value of investment" and "Margin of safety".
Not many people talked about Sensex and stock markets when it was traded below 14,000 till September, 2007. When Sensex crossed the levels of 18,000, many people started investments in the stocks on the hopes 30,000 Sensex levels. Sensex deceived investors by reaching 21,000 levels and everyone knew the rest of the story.
History of Gold as investment:
Gold is traditionally treated as safe investment in the difficult times. Big investors will treat this as "Safe Hedge" when equities are not yielding good returns and when dollar is weak. Same thing happened in 2003 when equities are in down turn for 3 consecutive years. These people will sell their hedge holdings like Gold and FMCG stocks once equities make bounce back. But Gold is safe hedge against inflation.
History of gold prices (in rupees):
1930: 180 per 10 gram
1940: 360 per 10 gram
1950: 1000 per 10 gram
1960: 1110 per 10 gram
1970: 1840 per 10 gram
1975: 5,400 per 10 gram
2000: 3,000 per 10 gram
2006: 5,400 per 10 gram
2009: 15,700 per 10 gram.
Gold surprisingly gave 300% returns from 1970 to 1975 when world suffered worst ever recession after great Depression. Will the history repeat? That is the reason behind current "Mad Gold rush". But if you invested in the Gold in 1975, your investment gave negative returns for the next 25 years.
Remember 2 things:
1. Gold generally trades in the lower range around March and July. Generally, it is the best time to buy gold and marriage season is the best time to sell God.
2. Below 11,000, Gold is a safe investment but above 15,000- it is only for traders but not for investors.
Future of Gold:
When stock markets are in down turn in 2002, Gold was at Rs 5,400 per 10 gram. Don't forget that Gold traded below 9,000 per 10 gram till 2007 means you might have got routine returns from Gold investment. But investors who made investments in gold in mid-2007 are now making 70% returns in just 20 months. But I don't know what will happen to gold investors who bought it at above 15,000 but they remain in losses even after 3 years. Why? Gold will recede to 11,000 levels once equities make comeback. What happened to crude oil will repeat in case of gold also. Don't forget that Gold is not even an essential commodity. But Gold is a less volatile investment.
Examples:
1. Crude oil prices moved to $147 per barrel and Goldman Sachs people gave $200 per barrel target. It is now trading below the fundamental price at $35 per barrel.
2. Sensex moved to 21,000 and analysts and analysts gave 30,000 target. It is now trading at 9,000 levels.
3. Real Estate prices reached astronomical levels in 2007 but people bought land as if there will be no land available for purchase in future.
Interesting analysis from Zaverat:
If you invested 10,000 in various investments in the early 1999, following are the yields by 2004.
1. Fixed Deposit: 13,794.
2. PPF: 16,025
3. Gold: 15,064
4. BSE Sensex: 20,769. Equities saw the worst bear market in this time zone but gave good returns. 10,000 invested in Sensex is still 10,000 by 2002 but 20,000 by 2004.
Gold may deceive investors for some more time but investors should ask themselves some basic investment questions before making fresh investments.
1. "What is the fundamental value of the investment whether it is a share, real estate or commodities like gold?"
2. Whether the price already included the good news or not?
3. Why analysts are giving bullish estimates? Is there any truth?
4. Are there any better value based investment opportunities?
5. What are the historical moments of that investment?
6. Are we late in joining the party?
7. What is the margin of safety at current price?
My estimate on Gold:
I don't know what will happen to the Gold in the next few days due to these "Herd investments". But Gold will trade below 12,000 levels even after 3 years. What it means that you will not get a single rupee from Gold investments at current valuations if you are a long term investor. If you are a trader, enjoy the mania. Young investors should allocate 5-10% of your portfolio to Gold and buy at reasonable prices.
Article on Gold From 4Ps:
4Ps magazine published an article on "How to plan investments for 2009-10?". Magazine published articles on various investment options like Stocks, Commodities, Gold, Real Estate and Currency.
Highlights of the article:
Warren Buffett: Gold is the most useless commoditiy.
Stat: Rs 100 invested in Gold in 1979 is Rs 400 in 2009.
I am writing this article on Gold after receiving many enquiries from investors on "Gold as new investment opportunity". Gold is now trading around Rs 15,650 per 10 gram. Gold now suddenly caught the attention of herd investors when value investors are selling their holdings. Another classic Herd Mentality (Reliance Power IPO) is now on the cards.
Gold was traded below Rs 12,000 levels per 10 gram for more than 1 year but no investor asked me about gold as investment. Now Gold is trading in the above 15,500 zone but people are now asking me about investment opportunities in the gold and my opinion on the target of 30,000 levels. This incident once again illustrated the "Herd mentality" of investors. These people will never learn in their life about the "value of investment" and "Margin of safety".
Not many people talked about Sensex and stock markets when it was traded below 14,000 till September, 2007. When Sensex crossed the levels of 18,000, many people started investments in the stocks on the hopes 30,000 Sensex levels. Sensex deceived investors by reaching 21,000 levels and everyone knew the rest of the story.
History of Gold as investment:
Gold is traditionally treated as safe investment in the difficult times. Big investors will treat this as "Safe Hedge" when equities are not yielding good returns and when dollar is weak. Same thing happened in 2003 when equities are in down turn for 3 consecutive years. These people will sell their hedge holdings like Gold and FMCG stocks once equities make bounce back. But Gold is safe hedge against inflation.
History of gold prices (in rupees):
1930: 180 per 10 gram
1940: 360 per 10 gram
1950: 1000 per 10 gram
1960: 1110 per 10 gram
1970: 1840 per 10 gram
1975: 5,400 per 10 gram
2000: 3,000 per 10 gram
2006: 5,400 per 10 gram
2009: 15,700 per 10 gram.
Gold surprisingly gave 300% returns from 1970 to 1975 when world suffered worst ever recession after great Depression. Will the history repeat? That is the reason behind current "Mad Gold rush". But if you invested in the Gold in 1975, your investment gave negative returns for the next 25 years.
Remember 2 things:
1. Gold generally trades in the lower range around March and July. Generally, it is the best time to buy gold and marriage season is the best time to sell God.
2. Below 11,000, Gold is a safe investment but above 15,000- it is only for traders but not for investors.
Future of Gold:
When stock markets are in down turn in 2002, Gold was at Rs 5,400 per 10 gram. Don't forget that Gold traded below 9,000 per 10 gram till 2007 means you might have got routine returns from Gold investment. But investors who made investments in gold in mid-2007 are now making 70% returns in just 20 months. But I don't know what will happen to gold investors who bought it at above 15,000 but they remain in losses even after 3 years. Why? Gold will recede to 11,000 levels once equities make comeback. What happened to crude oil will repeat in case of gold also. Don't forget that Gold is not even an essential commodity. But Gold is a less volatile investment.
Examples:
1. Crude oil prices moved to $147 per barrel and Goldman Sachs people gave $200 per barrel target. It is now trading below the fundamental price at $35 per barrel.
2. Sensex moved to 21,000 and analysts and analysts gave 30,000 target. It is now trading at 9,000 levels.
3. Real Estate prices reached astronomical levels in 2007 but people bought land as if there will be no land available for purchase in future.
Interesting analysis from Zaverat:
If you invested 10,000 in various investments in the early 1999, following are the yields by 2004.
1. Fixed Deposit: 13,794.
2. PPF: 16,025
3. Gold: 15,064
4. BSE Sensex: 20,769. Equities saw the worst bear market in this time zone but gave good returns. 10,000 invested in Sensex is still 10,000 by 2002 but 20,000 by 2004.
Gold may deceive investors for some more time but investors should ask themselves some basic investment questions before making fresh investments.
1. "What is the fundamental value of the investment whether it is a share, real estate or commodities like gold?"
2. Whether the price already included the good news or not?
3. Why analysts are giving bullish estimates? Is there any truth?
4. Are there any better value based investment opportunities?
5. What are the historical moments of that investment?
6. Are we late in joining the party?
7. What is the margin of safety at current price?
My estimate on Gold:
I don't know what will happen to the Gold in the next few days due to these "Herd investments". But Gold will trade below 12,000 levels even after 3 years. What it means that you will not get a single rupee from Gold investments at current valuations if you are a long term investor. If you are a trader, enjoy the mania. Young investors should allocate 5-10% of your portfolio to Gold and buy at reasonable prices.
Article on Gold From 4Ps:
4Ps magazine published an article on "How to plan investments for 2009-10?". Magazine published articles on various investment options like Stocks, Commodities, Gold, Real Estate and Currency.
Highlights of the article:
Warren Buffett: Gold is the most useless commoditiy.
Stat: Rs 100 invested in Gold in 1979 is Rs 400 in 2009.
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