Traditionally, during dire times and bear markets, gold has always proven to be a solid investment and safe haven for investors around the world. Recently, however, gold has not followed the traditional trend of surging during heavy equity market drops and it has only been above the USD 800 mark shortly.
This post investigates opinions on where gold is headed and if indeed it it remains a great investment.
Firstly, an Indian perspective in suggested from Livemint.com and Mr. RN Baskhar :
Investment is always fraught with risk. And with most investments losing value in recent times, many people have begun looking at gold again. But is it safe to invest in gold? There are three ways to answer this question.
The first is the price at which it is bought. Like any commodity, there are highs and lows. If gold is purchased at the high level in its price cycle, it will take some time to recover cost of investment.
A classic situation took place in 1980 where for a short time on a single day, gold prices scaled $800 (Rs39,920 now) an ounce. Those who bought gold then had to wait for at least 20 years before prices reached that level again.
Another way of looking at gold is as a hedge against inflation. Gold has (almost always) registered higher average price increases than average inflation rate in most countries. Moreover, unlike any other commodity, it shows little volatility.
The third way to look at gold is how its price appreciates. For instance, if one considers a 20-year period (the normal time frame for an individual to encash the benefits of his savings), gold was a marvellous investment in dollar terms. But as Indian prices were always higher than international prices, anyone who invested in gold at prices prevailing at that time will feel the pain of not seeing his investments pay off. So, never buy gold in India without comparing international prices.
Another interesting insight into Gold is offered by renowned market commentator and gold investor, Dr Marc Faber, who now finds the market ripe (again) for significant gold investments :
Dr. Marc Faber
“The most precious asset going forwards will still be
Gold ,” says Marc Faber, Thai-based Swiss fund manager – and publisher of the Gloom, Boom & Doom Report – speaking to Bloomberg.
“I only buy physical gold, because I don’t trust derivative products, I don’t trust ETFs , and I advise every American to hold his gold outside the United States.
“At some point, between January and March next year, you have to get out [of equities and exchange-traded commodity trusts]. The global economy is imploding – I repeat, imploding – and there’s not going to be a recovery despite all the government intervention.
“In their insanity, central banks have become money printers. So you have to become your own central bank. You cannot trust central banks any more.”
He also seems to think the government could confiscate your gold again very soon - but some of Harrison’s readers argue Faber is dead wrong.
On many things, however, Dr Doom has been right, many times before. This time, like many observers, Faber uses that much over-used word in his latest newsletter to describe the scale of wealth destruction over the last 12 months around the world: complete and unprecedented.
Stocks around the world are down by 50%, property prices have collapsed and commodities are in some cases down by 50% or more. World stock market capitalisation is down by approximately 50%, which equals to losses for equity holders of around $30 trillion. Add to this the losses from non-government bond portfolios, CDOs, MBSs and assets such as ships (the Baltic Dry Index is down by more than 90%) the losses that investors and businessmen have taken are simply colossal.
In the case of commodities, losses have been staggering especially for industrial commodities whose demand is driven by industrial production and capital spending. Nickel is down from a May 2007 peak at $53,452 per ton to around $10, although he adds, individual commodities can have widely diverging performances the same way in the stock market different sectors and stocks do not reach peaks and troughs at the same time.
Finally, Ira Epstein of IECo has some interesting views on where gold prices are headed too and goes on to ask himself if gold will be a winner for 2009 having concluded that it wasn’t that in 2008 :
Deflation, Inflation, Depression
Take your pick what 2009 will bring. My expectation, no matter the outcome in 2009, is that Gold will prove to be one of 2009’s better “safe haven investments”.
Just this year alone we’ve witnessed a burst in the inflation bubble along with a massive onset of deflation. We’ve witnessed so much deflation that Crude Oil Prices are down in but a few months over $100 a barrel, a loss of nearly 2/3rds of its value. Corn prices have fallen nearly 60% or so. Most major stock indices are down 40% or more this year.
Gold is also down this year as well. Gold closed 2007 near $840 an ounce. The February Gold contract is currently trading near $765, so year to date Gold has lost nearly 75$ an ounce. A 9% loss year to date. Obviously Gold bought by foreigners trading in Euro’s or other major currencies to buy Gold may have turned a profit since the Dollar has rallied about 12% against many major currencies. However, getting fancy about Gold investing is not what it’s about.
As I see it, regardless of what economic outcome we see in 2009, my expectation is for Gold to play an important role in wealth preservation. Interest rates are so low that in some cases buying a treasury instrument costs more than the interest earned. More important, I see Governments around the world spending funds they don’t have in a desperate move to shore up their economies. Seeing the enormous amount spent by the US Government on bailouts means at some point the value of the Dollar comes into question. As such, I don’t have a lot of faith in the value of the Dollar holding up in 2009. If the Dollar falls, that should support Gold.
As simple as it seems, once money starts being lent by banks and Mortgage Company’s, that lending process will go a long way in removing fear about the future. Right now, the mentality one of overwhelming doom and gloom, so much so that around the world people now fear another Great Depression.
Assuming Governments get money moving, once those funds begins to move through the economy, that money begins to chase goods and services. Goods and services that there will be fewer of due to the world economic slowdown. The seeds of inflation are therefore in place. It’s a change in money movement and economic mentality that is necessary to trigger it.
Keep in mind that at market bottoms things always looks their worse, just as at tops they look their best.
Economically speaking, things are bad and look bad.
I can also recommend that you check out his video commentary !
In conclusion, no one of course knows where gold is headed but it seems that many agree that in these uncertain and dire times, gold is probably a better bet than most investments and certainly equity.
Alternative investments, Gold Investment, Investment Management, Investment News, Investment opportunities
Gold, Marc Faber
