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Thursday, April 11, 2013

the falling Gold ~ any indicator of negative inflation ?


The daily rates of 22 CT 1 Gm gold has been 2728;2780;2780;2767;2748 & 2770… clearly on the low side as compared to previous months.  I have earlier posted many a times on the mad rush seen at Gold shops and the lure of that yellow metal not only for the rich and famous but also for middle class.  Most women are extremely fond of gold jewellery and the milling crowds at the Gold shops in T Nagar vouch for this. A gold coin is a cute thing irresistible to look at.  The yellow metal has been used for coins from times immemorial, mainly because of its intrinsic value.  Now there are collectors’ coins and common one serving as a medium of investment. 

Gold is traditionally viewed as a safe-haven investment in times of economic uncertainty and geopolitical tension. It is also used as a hedge against rising inflation and depreciation in the value of paper currencies. Gold has been money for many reasons – it can be traded easily; it always has a high value to weight ratio; can be divided into smaller units without destroying; tougher to have counterfeits and the scarcity of gold has only been going up.

Gold has always been used as a symbol of  status and power. While  24ct  is the Purest  gold, it  is too soft to make jewellery; hence to give a proper shape to 24ct  - silver, copper, zinc, nickel are added. The higher the percentage of other metals added in the carat of gold ,  the purity of the gold itself low.

Understand that the 24 Ct Gold rate in Chennai today is Rs.3198/-and there is talk that the prices of Gold has been falling steadily.  Perhaps the best time to buy a piece of yellow metal ~ though it may not be music to the ears of all ~ especially for those pledge, pawn and take loan against gold.  In a falling market, for getting loan, the borrower will have to pledge more grams of gold. According to a Company which provides gold loan, because of Reserve Bank of India's cap on gold loan companies to maintain a LTV (loan to value) ratio of 60% or 60 for every gram pledged, the actual value disbursed per gram has reduced and hence more gram for less money.  The good news is that the terms and conditions will remain unchanged for the existing borrowers. Lower prices also could impact the turnover of such companies ~ nothing to worry unduly for the common man.

Globally, after a decade-long bull market, the rise and rise of the gold price has been pulled up short by a wave of selling. Gold bugs say this is simply a pause on the long march to $US2000; gold bears argue the party is over. For the moment, the bears are winning but the bugs are playing a longer game. Gold is up 481 per cent since 2002, when it traded at $275 an ounce. It hit an all-time high above $US1900 in September 2011 but it has since fallen below $US1600, down almost 5 per cent this year alone, on a wave of selling. Gold stocks have fared even worse (see graph below.

In the March quarter, global gold exchange-traded funds (ETFs) recorded their largest outflows since the products were launched a decade ago. Much of the selling was attributed to hedge funds, most notably George Soros, who sold half his gold ETFs in February as well as gold equities. In all, 7.2 per cent of ETF gold stores were sold over the quarter.

In India, gold prices fell below Rs 30,000 per 10 gm for the first time in seven months on 21 February 2013; the fall does not mean that gold is not a good investment – perhaps more reasons to buy gold on a sliding market. There has always been greater circulation of paper money and money would get pumped in the financial system, with those with money reviving the economy.  There is a general notion that at times of inflation, people tend to buy more hold, perhaps as a hedge.  .

The simplest of the recommendations would be : - first ~ make Savings a habit; next don’t put all eggs in one basket – try to diversify; and ensure that you have a fair share of gold in that investment – may not be solid gold – softer the better still – go for ETF too. Here is how the 22Ct gold performed in Chennai market – source www.indgold.com


With regards – S. Sampathkumar.
11th April 2013.

1 comment:

  1. The information given in this post is very helpful because it gives good details about the falling price of gold loan. Now it is to buy Gold and when the time of need urgent cash it will helpful. I had taken a loan against gold from top most leading company Muthoot Finance Gold Loan when I was in great trouble and I need some cash urgently. I really thank to Muthoot Finance which has such a great service.

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