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Thursday, September 2, 2010

The temptation to buy - Investment in Yellow metal - Is it Wise ??

Do you know who George Soros or do you watch TV news regularly ?? Why should a loaf or bread or a kilo of vegetable cost many a times more than what they did 20 years ago ? The ingredients used to make the bread remain unchanged, the innovative new machineries and technology have eliminated wastage and perhaps should have reduced the price by now. Actually, the value of money in your pocket has fallen – that is what is showing off. Can that be off set by savings ? A nice thing to read on the start of the month when the bank account has swelled with salary and credit card payments and EMIs yet to ring in.

Putting money in bank / Companies was what savings was ? Some ventured into buying land / houses / plots – very few parked them on precious metals. Buying gold ornaments is no investment – they are for satisfying one’s lust for beautifying / decorating self more and more – a mere exhibition of wealth. Of the precious metals, gold is the most popular though the gold market is also subject to speculation just as other commodities are.   A good friend of mine said that he used to buy a gram of gold every month – that was the definition of savings. What was visualised was way to richness by gleaning gold atleast a month. T Nagar is one the most sought destination in Chennai city and bustles with activity on all days. It has Gold shops sprinkled everywhere and inside people gather in hundreds before every counter to buy the yellow metal. The chemical element with the symbol Au (Latin aurum – shining dawn) enamours woman who devour ornaments (much to the bewilderment of accompanying husbands). The highly sought after precious metal occurs as nuggets or grains in rocks and in alluvial deposits. Pure gold is yellow in colour, malleable and maintains itself without oxidizing in air or water. Though it looks most pristine in coin form or as biscuit or as bars – mostly it is purchased in its malleable form – bangles, chains and small pieces of studs & ……………………….. what not ??

Traders capitalised the sentiments by promoting Akshaya Tritiya and the roads of T Nagar resembled local trains or scenes outside cinema theatres (once upon a time) immediately after the show is over. People inched forward shoulder to shoulder, to rush into any shop and buy gold. There was potential stampede near any Gold Jeweler worth their name.   Do you know that until 1990, the Gold Control Act forbade the private holding of gold bars in India. Still rich men were possessing gold biscuits often said to weigh 10 tolas – they reportedly bought smuggled bars and buried them for making jewelleries for family wedding. But in the last two decades much has changed and investment in small bars has substantially increased as gold ranging from small coins of 1 g / 2g / 4g/ - to 10 – 50 & 100 g and biscuits of higher weights are freely available in the market. With rupee value gaining consistently, gold has been one of the trusted ways of concealing wealth. In 1998 RBI restituted over 40 tonnes of gold from bonds
Many of us are worried of our future and want to save something substantial for taking care of our family and our own selves in future – worried about the inflation and rising prices. Inflation is a rise in general level of prices of goods and services in an economy over a period of time. When the prices rises, each unit of currency buys fewer goods – thus it erodes the purchasing power – a loss of real value. Consumer Price Index is thus reliable measure of measuring inflation. Its effects are many and puts uncertainty to one’s mind. Quite often we hear people telling us that x amount of saving would not stand them in good stead as costs would soar beyond that when the requirement dawns after few years… uncertainty over future inflation may discourage investment and savings as high inflation will lead to shortage of goods as the society would begin hoarding things projecting price increase. ‘too much money chasing too few goods’ would be the inflationary trend.

Some economists feel that Gold, silver and platinum act as a hedge against inflation and a safe haven in times of financial crisis. Hedge is a position established in one market in an attempt to offset exposure to price fluctuations in some opposite position in another market with the aim of reducing one’s exposure to unwanted risk. This is not an insurable risk.

George Soros recently declared at start of this year that gold is the ‘ultimate bubble’ sparking fears that prices of the yellow metal could soon suffer a tumble. This hungarian born in 1930 is a currency speculator, stock investor, businessman, philanthropist, and liberal political activist. He became known as "the Man Who Broke the Bank of England" after he made a reported $1 billion during the 1992 Black Wednesday UK currency crisis. He is the chairman of Soros Fund Management and the Open Society Institute and a former member of the Board of Directors of the Council on Foreign Relations. He played a significant role in the peaceful transition from Communism to Capitalism in Hungary and provided Europe's largest ever higher education endowment to Central European University in Budapest. In the United States, he is known for donating large sums of money in an effort to defeat President George W. Bush's bid for re-election in 2004. He has displayed great business acumen in able to withdraw at the right moment enormously successful as a speculator.

The Indian appetite for buying has increased manifold. The newstime in any TV channel devotes a specific time for displaying the rates for ornamental gold as also gold in bullion form. It is not the business news but GOLD news (thangam indraiya nilavaram - rate of Gold today) News reports suggest that the first half of 2010 has seen rekindling desire as demand rose by 94% as compared to the earlier year. The demand for jewellery is robust with volumes growing by close to 70%. The prices naturally are also going up, up and up. In the local market, gold bars are gaining popularity.     The first time buyer would often be surprised by the weight. Remember in olden days, the villain in Airport would be carrying gently a suitcase carrying gold biscuits arranged and hidden inside some other item. These are pure gold and cost much more than the gold rate for jewellery (24 K Vs 22 K) The rates have been raising consistently. During Jan 2010, it was around 16600, hovered around 18000 and crossed 19000 in Aug. On 2nd Sept 2010, it was traded around 18993, 19046, 19034, 19066 & 19042. The all time high was 19198 rupees in early June 2010.
As the precious metal continues to glitter – the gold price on 1st Sept at Mumbai went up to Rs.195 per ten gm (19140) – gold of purity 99.5. The wisest investors make money in gloom and bloom. Soros predicted gold as hottest commodity on earth, biggest asset bubble – he reportedly is piling his money into gold. Why would pour money into gold when the forecast is that it would bubble.  An ordinary novice would think twice (or would not risk at all) to buy when the rates are on the rise and when the forecasts are about its sudden fall - the balloon would burst only when it becomes too big and riding on the crest of the waves always would make one rich. Whether it is a surge or swelling – one can test the water only by getting into it. It is stated that globally investors are accumulation enough bullion to fill Swiss vaults twice over as gold’s most- accurate forecasters say the longest rally in at least nine decades has further to go no matter what the economy holds. More investors are adding to their gold holdings.

So what are you waiting for ? Are you taking a day off and heading for a gold market – salary is still in bank or any way there is plastic card with enormous potential.

With regards – Sampathkumar S
Statutory Warning : Never get carried by the glittering or what the next door neighbour is doing ; suggestions are after all free and easy to make.


  1. Brother, only those who have extra and excess money in hand need to be worrying about this. Your article started with bread. Those eating bread and butter better be worried of their next meal than the price of gold - Kumar

  2. very good - golden one - quite attractive - Shanthi

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  5. Very well and informative content