Gold Investment In India & Its Benefits

 

Gold prices have been moving southward; should you consider this as an opportunity to invest in gold?

Everyone appears to believe that the bull market for gold has come to an end. Further, they believe that gold prices will ‘keep falling’. The reasons forwarded are primarily that after a tumultuous period where European sovereign defaults were anticipated and sputtering of the US economic recovery, after several initiatives by respective governments both seem to have stabilized and a calmer future is now foreseen. A calmer economic environment is supposed to bode well for financial investments leading to lower dependency on traditional forms of hedging viz. gold. Gold has hence lost value and continues to be in a downward trend.

For that to be true, certain things have to fall in place. The last bull market in gold ended when the US Federal Reserve (Fed) changed its policies in 1979. Monetary policy was significantly tightened. Interest rates, which trailed inflation rates, were hiked up significantly allowing investors to have very decent real rates of return (interest rate minus inflation rate). Not only this, inflation was also kept in check to maintain real returns.

 In this situation, bonds became more attractive than gold (due to high interest rates and falling inflation). By contrast, gold prices fell nearly 70% during the period 1980 to 1999 reaching US$ 250 per oz.

In order to address slowing GDP growth in late 1990’s, US monetary policies were loosened leading to lowering of interest rates. This was coupled with the attack on World Trade Centre in New York in 2001 which led to questioning the US status quo on global military dominance. Both these events hastened the weakening of the US dollar and strengthening of gold prices.

This lasted till 2012 and since then, gold prices have started falling again. What is the reason? Is the US planning to enact similar monetary policies it had during the 1980s? No!

In fact, the truth is that governments across the world are printing more and more currency notes resulting in inflation only moving one way – up. In fact, nearly every major country in the Western world is running a big deficit. Central banks and central governments are committed to a particular course of action. Does it lead to more valuable paper money? Does it lead to price stability? Does it lead to sustainable growth?

Or does it lead to bubbles, crises, booms, busts, and possibly an eventual blow up? Clearly, the value of paper money looks to be increasingly precarious. In this situation, the only real value will reside in GOLD!

Key Gold FactAccording to the US Geological Society, gold mine supply would exhaust in 12 years.

30-year gold price history in INR per gram.