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Commentary

Why I Am Very Bullish On Gold

Not really the ten reasons, but one step at a time.

  • So the US economy is crapping out. Big deal? Yessir, very big deal. Dollar hits big time lows. What happens then?
  • Look, a lot of us Asian Economies including the guys who have lots of oil and desert, have our bloody reserves in dollars. Ok?
  • And if you flush the dollar down the toilet like the US is most likely to do with some grandslam rescue attempts to save some lousy bond insurers, we Asian Economies don’t know what the frick to do with our reserves.
  • Oh you small little Asian Economies you say. Dude, get real. This is a huge deal, a few trillion dollars. China has some 1.5 trillion, Saudi Arabia has about 800 bn, and with Korea, Singapore, India etc. I think we’d top the 3 trillion mark. Don’t even count Japan.
  • So what reserve currency if not the dollar? Uhm, the Euro? No thank you, you guys are even more clueless and more divided in a recession than we can trust. The pound sterling? Not very different from the dollar, and now we can’t understand the accent either, depending on which part of the UK you’re talking about.
  • So we’ll set up sovereign funds, maybe. But what are we going to buy? The US won’t let us touch defense etc. or even big telcos, and these are the only things worth buying in a recession. At least on the scale these funds want to think about.
  • Latin America, yes. Now good place for sovereign funds to invest. Unfortunately, we are also clueless out here and can’t figure out Portugese or Spanish, so we will give that a miss, regardless of how good the investment might be.
  • That leaves precious metals. We had a gold reserve earlier but it’s gone now, but gold is still worth it. But which bugger will go buy at this obscene price? Answer: Everyone. They’re all waiting for someone to jump in and then everyone’s in.
  • When these guys talk some gazillion trillion dollars, gold is likely to jump up a little bit. And when it goes too high it’s likely to get some regulatory interest (like saying “we’ll control the price of gold”) which will again cause it to shoot through the roof because that’s how the market works.
  • If the world works like I said, someone who bought gold now would still make a lot of money.

So I would buy Gold. As an Exchange Traded Fund. , here I come. (My official excuse is that I’m investing for my son’s future)

  • Anonymous says:

    >Where and how would you buy an ETF?

    Should one contact his/her share broker? or a Mutual Fund agent?

  • Deepak Shenoy says:

    >Your broker should help. If you have an online trading account, look for the symbol GoldBeES on the NSE. It’s around Rs. 1235 today.

  • Ravi S Ghosh says:

    >A bleak possibility is that something may happen which may cause gold to lose its precious status, for example someone discovers huge (really huge) deposits of gold just as they discovered oil in middle east some time back. Or some crazy chemist finds out the methodology to convert coco cola cans to gold!!!!

    All these seems seemingly unlikely but so was the case of oil in the deserts of middle east and more recently american credit crisis. Did anybody think of anything like the credit crisis 2 years back.

    PS: Thoughts borrowed from Nassim Taleb, author of “the black swan”

  • Deepak Shenoy says:

    >True, there is that possibility as well. In fact if gold becomes much more expensive it might be profitable to get it out of deeper mines or to work with lower density deposits.

    You’re right, I hadn’t considered this possibility just yet. Still, the impact of higher demand will probably overshadow the higher supply at least in the next few years.

    Like Taleb says – it’s all about odds. If the odds work out, one can take a contra view as well, by buying deep out of the money puts on the commodity.

  • Nilesh says:

    >man, today i was about to ask youif it is right time to buy gold. and here i come and see full post on same. nothing could make me more happier today 🙂

  • Nilesh says:

    >one more thing deepak, i have icici demat/trading account. do i need to have comodity trading enabled over there for buying gold.

    i see “GOLD BENMARK EXCHANGE TRADED S” in equities buy options. is is right thing to buy.

  • Anonymous says:

    >Hi Deepak,

    Thanks for the informative post.
    Any thoughts on Kotak/Reliance/UTI Gold ETFs??
    Also, how abt investing in the gold mining company deccan goldmines??

    Regards,
    Anshul

  • Deepak Shenoy says:

    >nilesh: yes that should be the one.

    anshul: have to check, the issue there would be – are they producing it efficiently and managing to get good prices. This will reflect in last four Q earnings.

    Know any other companies? I should be able to do a quick analyis.

  • Anonymous says:

    >Hi Deeapk,

    I think that’s the only one listed and is owned by some australian tycoon.
    Will be waiting for your analysis.
    Regards,
    Anshul

  • Anonymous says:

    >If I buy Gold ETF, What will be the tax implications? I think ( not sure) that I do not have to pay wealth tax. And I will have to pay STCG And LTCG as a debt fund.

    Modi

  • Deepak Shenoy says:

    >Modi: Yes I think the capital gains tax implications are similar to debt funds. No wealth tax though.

  • Ravi Sankar says:

    >Hi Deepak,
    Today, i came across an article in economic times, which mentions about DSPML-WGF.

    Can you please comment on this.. and also which one(WGF or ETF) do you suggest if anyone wants to buy the gold ?

    Also what are the tax implications of the WGF.?

    Regards,
    Ravi Sankar