Gold Glitters: Is it time for Jitters?

How many times have you heard elderly people bragging that there is nothing like gold? I really don’t want to shun their beliefs, but how I look at gold, it not even qualifies as an investment. What a fool, and what not, you must be thinking.

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Alright, you believe it’s a good investment. Let’s take it from there then. Right now gold returns are topping any other investment vehicle, may it be stocks, fixed deposits, real estate, and even investments in art. Talks of whether gold is a bubble have been around for past few years, but this yellow metal kept on rising.

You can find countless reasons as to whether you should buy it or not, and I will list a few important ones later in this write-up. Sometimes, it amazes me as why people even think of investing in gold when there are rock solid investments such as government bonds and fixed deposits, where there is nothing to fear. Some may say that returns on gold are higher, but then stocks have historically outperformed every other asset class.

The right question you should be asking is- How safe are your investments in Gold?

If you take a look at last ten years performance of gold, no one can convince you that it’s a bad investment. But when the cycle turns and the gold bubble fizzles, jitters will be seen all around, just like the dot com bubble in 2000 and the very recent recession.

Before I disappoint you, let’s see the greener side of gold

Unlike a business, gold is independent of factors such as, who will be the next CEO, and what will happen if the competitor launches a better product.

Gold has risen more than 400% in the past decade. Another solid reason to buy gold is that it will never fall to zero. Paper currencies on the other hand carry this risk, no matter how strong they appear. If you just google, you will find numerous analysis on why US dollar will eventually be zeroed.

Gold holds value for its resilience, and I can quite certainly say that it rises when fear and uncertainty strikes. You will see gold pop whenever there is a crisis situation looming on the global front.

All the above mentioned reason may seem convincing to a layman investor, but I don’t care much. However, there is one good reason why I do recommend tiny holdings in gold. I believe that a true investment is the one, which you can liquidate anywhere around the world at the same price, and with ease. You can’t do that with your currency, as its value changes globally.

Current Trend in Gold

While I am writing this post, Gold is trading a couple percentage points down from its recent peak of just below $1600 per ounce. Some are already calling this decline the end of gold bubble. If you take a look at this interesting chart, you will be shocked to know that gold can haunt you as an investment for such long periods, like it did from 1981-2006. If took 25 years for gold to hit positive territory after the gold bubble in 1981 got bust. At present we are experiencing a similar bubble, and we could see history repeating itself. So, from where I see, gold is an over inflated bubble, which when bursts, will be of much bigger magnitude than the recent recession. Silver will move in tandem will gold, so don’t seek a hideout there.

Its already morning, and I need to catch some sleep. I hope I didn’t disappoint you much. Well, as gold rush is turning gush, I will return tomorrow and tell you why I feel Gold should not even be considered as an Investment. I will even write about things that could happen around the world, if this bubble really bursts in next few months.

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