The ‘bullion’ $ advice

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Gold has always been a wealth preserver & not a wealth creator

“All that glitters is gold.” Though antipodal of the famous Shakespearean tad, it fits pretty well in the context of gold in today’s times. While investors are wary of the equity market, gold is hell bent on breaking all historic price records. So, is it a golden time to invest in the bullion?

From Rs.10,658.75 (per 10 gm) on January 1, 2008, gold prices have taken a giant leap and touched Rs.14,315.00 on February 11, 2009 – a phenomenal 34.30% increase in just one year. Even, between 2000 and 2008, gold has been averaging 14-17% annualised returns. Amar Singh, Head of Research, Angel Commodities confirms, “Gold buying in the last one year has not yielded any losses.” This is primarily because the base cost of bullion can never become lower than its cost of production unlike in equity market. So, “it’s always safe to invest in gold for long term gains,” agrees Pratim Patnaik, AVP and Head Retail Business, Kotak Commodities.

But then, this has not always been the case. In fact, gold has never been a real wealth creator; rather it has always acted as a wealth preserver. For instance, if you had invested Rs.100 in gold 20 years back, it would have fetched you Rs.387 today, however the same amount would have garnered Rs.2,310 if it had been invested in stock market. And of course, our favourite Buffett considers this commodity amongst the most useless investments. Well Warren, we don’t invest in gold, and we still aren’t ‘bullionaires’.

Savreen Gadhoke

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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