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Commentary

Gold is a Reasonable Investment: GW

George Washington writes in at Naked Capitalism on whether Gold is a Reasonable Investment.

It’s an excellent compendium of links, articles and opinion on Gold. Some points:

  • Gold, considered a hedge against inflation, does well in deflationary environments too. And if the environment involves devaluing currencies it goes up – like the purchasing power of gold did during the Great Depression and in the last 10 years.
  • There’s some evidence that while gold loses some sheen in the early part of a deflationary period, it climbs in the later part; the Yen-Gold chart is provided.
  • Short term interest rates near 0% are good for gold.
  • Government distrust – of the type happening in the US (we in India have never trusted our governments) – is positive for Gold.
  • It’s the currency-of-last-resort, so panics induce buying.
  • China will buy dips and effectively put a floor on gold prices.
  • satheesh says:

    >deepak sir please i dont know ur mailid.i want to ask a question bcos i feel u r the one with indepth research skills.whether economy going up or down,central banks regulating the free flow of money every year some money is printed.so i have a feeling that every year money supply continuously increases so any idea in that direction please my mailid is satper@gmail.com

  • Anonymous says:

    >For Indian Conditions, gold and Real Estate is one of the best investment choices. If one is prepared for a a little leverage can consider DSP-BR Gold fund or AIG Gold fund. Personally I invested (10% of my portfolio) in DSP in Nov. 08 and now sitting on 100% appreciation. Unfortunately these funds are treated as debt funds (although they invest in Gold Mining equities) and hence have to pay 20% LTCG. If someone wants to create a portfolio to beat Hyperinflation or Deflation, Gold is the best bet as gold is considered as store of value which cannot be printed like currency notes.

    Personally I have 10% in Gold Miners, 10% in Gilt funds, 40% in Indian Equities and 40% in Dynamic Bond Funds. The first one to take care of Inflation including Hyper Inflation, Second one deflation and the rest for normal times. I do annual rebalancing.

    This strategy has provided me with limited losses even during bad periods like we had last year.

    MK

  • Anonymous says:

    >Funny, I rolled my Gold puts into OTM Mar 2010 puts the same day. Small position due to the puts being 30% OTM but I'd rather speculate in the other direction.

    Silver has worked nicely as per textbook this year. Gold/Silver ratio normalizing.