Can gold prices soar to six digit levels? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Can gold prices soar to six digit levels? 

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In this issue:
» What does Biocon chief feel about India's tax structure?
» Brightest of the bright but still without a college admission
» The one thing that should keep you awake at night
» Jim Rogers on the latest threat facing the US economy
» ...and more!

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How many times have you let go of a stock thinking it has already gone so high, how can it possibly go higher. Quite a few times, isn't it? In fact, the legendary Peter Lynch calls this as one of the ten most dangerous things people say about stock prices. Indeed, this tendency has led people to miss quite a few promising stories. It should be noted that somewhat similar emotions seem to be running through their minds whenever the topic of gold is brought up. Gold has no doubt had a stellar run so far. But has the rally fizzled out? Maybe not by a long shot. As per an expert based in the US, if the current demand worldwide for a return to gold standard becomes a reality, then all bets on the price of yellow metal will be off the table and the same could shoot through the roof. How high can the gold price then go? The number that is doing the rounds is as high as five times the current levels! In other words, gold could even touch six digit levels in rupee terms if the gold standard becomes a reality.

Mind you, the demand for a return to gold standard is getting intense by the day. Why wouldn't it? After all, this seems to be the only way the western world, especially the US, could be forced to live within its means by putting a cap on the amount of money it can print. And it isn't that something of this sort will happen for the first time ever. History is littered with examples where a society has real money in the form of gold and silver and then they come out with either debased coinage system or paper currencies only to realise that such a system is inherently faulty and unstable. Thus, history could well repeat itself. And having a decent portion of one's wealth invested in gold is the only way to stay prepared for such an eventuality.

Do you think the world would return to gold standard? Share your views with us or you can also comment on our Facebook page.

01:11  Chart of the day
There has been a lot of talk in recent times about how if the interest rates are not reduced; the banking sector in India could be left saddled with a lot of debt. In view of this, today's chart of the day has tried to highlight the most indebted sectors in the country as at the end of June 2011. This data is based on outstanding loans of Indian banks and identifies the power sector as the biggest borrower of them all. While steel and telecom are not far behind, the gap between these three and the next two sectors on the list is indeed huge. It should be noted that execution is not the only issue that plagues the power sector, its long gestation period could also lead to asset liability mismatches for the Indian banking system.

Source: Financial Express

Nomura's geopolitical analyst Alastair Newton, though a little known name, is someone we think should be heard. He was one of the few to smell trouble in Egypt well before the street protests began. With trouble brewing all over the globe, which is the place that one must worry about most? In Mr Newton's view, that place is Europe. Apart from the debt crisis itself, the disagreement among euro zone leaders is only going to make things worse. For instance, one of the gravest issues at the moment is that of recapitalisation of European banks. But there is no agreement on this issue between major euro zone members such as France and Germany since both countries have different political dynamics. Moreover, even as far as the Greek debt write down is concerned, they are not on the same page. The situation in the euro zone is akin to too many cooks with different tastes trying to salvage a spoilt broth. What will eventually become of the fare, time will tell.

Europe has decided to change its tax structure to tax the rich more. Should India follow suit? Head of Biocon, Ms Kiran Mazumdar Shaw, does not think so. She opines that Indians are already being taxed as per their income levels. As a result, people in the higher income brackets are paying anywhere between 30% to 50% of their income in the form of taxes. Things are very different in Europe where tax shelters help the rich in paying minimal amounts of tax. Plus, the countries there need larger funds to be able to invest in the countries' growth. This is not the case in India. The problem in India is not the quantum of funds raised through taxes. It is the appropriation of these funds. Most of the funds are siphoned into populist policies. A large part is lost to poor governance. The government needs reforms to correct these issues. Not to torture the people by raising tax rates.

The US economy is set for a contraction. Most people believe that the country is headed for a balance sheet recession. This is where the economy sees a downturn, but consumer prices do not rise sharply. However, legendary investor Jim Rogers is of the opinion that the US economy is in for a far severe stagflation. In this situation, the economy contracts and consumer prices rise. It has an acute effect on citizens, as unemployment is high and stuff is expensive. Plus, it is also difficult to eradicate as measures to reduce inflation can worsen economic growth.

The Fed has initiated loose monetary policies in order to stimulate growth and jobs in the economy. However, these are having a greater impact on inflation than the government would like to admit. And it is no secret that growth is slowing in the erstwhile giant. Thus, stagflation may not be very far off, and the authorities need to do something quickly, even if that means going through some severe short term pain.

Can't get into a decent college here? Go to the US! No, this is not meant to be a joke on the rich and spoilt kids. Instead, this could be the advice for the brightest minds in India. Even the ones hailing from middle class families. This is sad but true. Given the paucity of quality educational institutions, Indian teenagers find it easier to gain access to better academic opportunities abroad. This is after more than 90% score in final high school examinations makes them incompetent to get admission into colleges in their city.

A New York Times articles cites the examples of teenagers in New Delhi where a 100% score has become the new benchmark for cut offs in the most sought after colleges. This has forced some bright kids to seek admissions to Ivy League Universities in the US. Their application on the other hand has been welcomed by the universities with generous scholarship offers. And why not? After all, the universities themselves are looking to expand their student base in emerging markets. Hence, the government attempts at making primary education compulsory for the masses are appreciable. But at the same time, we can ill afford to lose the best minds to foreign universities. It is time the government looks beyond the IITs and IIMs!

It was an enthralling week for the global stock markets. Sustained buying amidst positive global cues lifted the overall market sentiments. The US stock markets closed the week on a positive note (+4.9%) on better than expected retail sales data for the month of September and positive earnings surprise from Google Inc. Retail sales increased 1.1% in September, the largest gain recorded in the last seven months. Being a key barometer of consumer spending, strong sales figures excited the street. Better than expected earnings from Google Inc also buoyed the markets.

Indian stock markets were up 5.2% during the week. Absence of negative news flow and short covering led to healthy gains during the week. Expectations of strong corporate earnings for the September quarter also instilled momentum in the markets with the Sensex posting the highest weekly gain in the last six weeks. Amongst the other world markets, Brazil was the biggest gainer (up by 7.4%) with Germany registering a gain of 5.1% during the week. However, UK and Japan posted modest gains of 3.1% and 1.7% respectively.

Source: Yahoo finance, CNNfn, Kitco, Equitymaster

04:54  Weekend investing mantra
"If a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you'll end up with one hell of a result." - Charlie Munger
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20 Responses to "Can gold prices soar to six digit levels?"

Gangadharan Nair

Sep 29, 2012

If everything goes as it is the Gold price will shoot up to Rs. 10.000/- per gram in 6-8 years. But any momemnt our Government can introduce the GOLD STANDARD. But before that the Government has to withdraw tax laws and declare India to be a TAX HAVEN. Once it is declared Tax Haven there will be a flood of foreign money, including the Swiss deposits of our Indians, flowing to India. By this foreign money the nation can buy enough of Gold for the purpose of introducing GOLD STANDARD. Care should be taken to withdraw all currencies above Rs. 50 so that all transactions will be through banks only. Since there is no return on Gold in GOLD STANDARD nobody will be interested to invest in gold for the sake of investment. Since higher denomination currencies are not available , nobody will keep currency as a store item. So every possible liquidity will be available with the banks.



Mar 27, 2012

I've been keeping an eye on gold prices over at my site and although prices have dropped recently I think they will pick back up this summer.
There is a lot of turmoil in the world right now and until everything gets sorted out I think the price will continue to rise.



Mar 3, 2012

In USA the FOMC will start to reverse the interest rate cycle, in such scenario GOLD BUBBLE will blast

As per Economic Theory, GOLD is an instrument to hedge the Inflation. whether its Cost Push inflation Or Demand Puch Inflation

There is no any standardise defination of Gold Standard but its illusion in recent ongoing financial and geo political crisis.
In this ipad world there may be some innovative theory someone can produce against the GOld Standard.



Jan 20, 2012

No. Not at all.
The opinion expressed here appears to be somewhat biased and subjective.



Oct 23, 2011

Gold price Trend: within 5 years it moved from less than Rs.10,000 (4digit)to Rs.28,000. thus technicaly gold price should move up to 6 digit by next 6-7 years in normal course.



Oct 21, 2011

rupee appreciation at that time of 6 degit price will be at a topmost bottom



Oct 21, 2011

yes i hope it will reach such level very soon.



Oct 19, 2011

This co is biggest fraud pls all the investors do not go buy them....... i had subscribed to thier all sub of mid cap and hidden gem for last 2 yrs and suffred loss of 90 % of my capital.I urge all the investors do not buy their views and recommendation.........

Like (1)

Manoj Kumar

Oct 17, 2011

No! Not at least in the near to medium terms. In fact not before the current system completely fails and brings large scale misery. And that is not going to happen until 20 years hence.

Like (1)

A Chopra

Oct 16, 2011

Thanks to Kiran Mazumdar for talking sense about taxes and wastage by those in power, few have the guts.

Like (1)
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