|»5 Minute Wrap Up by Equitymaster|
On This Day - 15 JUNE 2010
Why are these investing legends holding on to gold?
In this issue:
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So, what can you do with your gold now? Sell, or hold?
If we were to take cues from a couple of investing legends of the current times, the second option carries more weight. We are talking about Jim Rogers and Marc Faber, who are holding onto their gold, tightly! These guys, unlike US Fed's Ben Bernanke, are not confused at gold's surge. And they both say they have no intention of selling their holdings, and are always on the lookout for dips so they can acquire more.
The biggest reason Faber and Rogers are holding onto their gold is that governments across the world are getting deeper into debt. What this means is that they continue to print more of their own currencies, which has the potential to lead to massive currency depreciation and inflation in the future. They rightfully understand that these governments have become addicted to these practices even more than in the past. And it's not sustainable by any stretch of the imagination!
So taking these factors into account, both Faber and Rogers are counting on gold to continue to move upward in price. This is notwithstanding any temporary correction that can take its price lower for a short while.
See, gold will enter a bubble phase only when its price goes up to unrealistic levels for no clear reason. And there are many reasons to believe now that this situation won't happen until far into the future!
So, are you a gold buyer now? Share with us.
We couldn't have agreed more especially on the first point. India's relative insulation from the global economy would mean that the Indian growth story would continue to chug along nicely. However, Indian stocks could get affected due to global volatility as even though we may not be connected economically, we are indeed very closely intertwined with the global capital markets.
Well, we do not have any specific data for India from the report. But one interesting fact thrown up is that India and China together are expected to make up 75% (around US$ 9 trillion) of the increase in AUM in the Asia Pacific region over the next five years!
At 10.2% in May the WPI (wholesale price index) is much higher than 9.6% recorded in April 2010. Liquidity has been tight lately due to high 3G license fee payments by telecom companies. Also, advance tax payments have contributed to the drying up of liquidity. With these the RBI seems to have little option but to tender price control measures. Bankers too have vouched for a rate hike to control the liquidity situation. It seems that that the upcoming monetary policy review will have many questions to answer.
This comes even as Greece is trying to implement fiscal austerity measures and structural economic reforms that seek to reduce its debt burden. But rating agencies evidently do not seem to have too much faith in these attempts. If Greece were indeed to default, banks and other institutions could face huge losses. It will also have a domino effect, wherein the cost of borrowing for other Euro zone countries will go up. This could in effect trigger even more defaults by other countries like Spain and Portugal who also have shaky finances. While rating cuts such as these are not always accurate signs of things to come, they do serve to add to the level of anxiety in financial markets!
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