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Is gold still a good buy? - Views on News from Equitymaster
 
 
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  • Mar 12, 2012

    Is gold still a good buy?

    It is already up so much. It can't go any higher than this. This is the most common reason people seem to be giving when asked about their gold investments.

    Truth be told, the first part of the reply is certainly correct. Gold has been going up not for the past one, two or three years, but has now been on an uptrend for more than a decade. Thus, it is natural for any rational investor to question the yellow metal's rise from here on.

    But we have strong reasons to believe that gold may not be done just yet. Not by a long shot. And to know why, we may have to turn to the world's reserve currency as of now i.e. the US dollar. Because it is only if the dollar is on a sticky wicket that the prospects for gold will look up. Otherwise, gold would still have been a third world relic.

    So, how do the next few years look like for the US dollar? Not very bright we should say. Just as in the past, the value of the US dollar will continue to diminish with time as the money printing goes on unabated. As a matter of fact, the devaluation of the US dollar could become even more dramatic if the US Fed resorts to drastic steps to push back deflationary forces.

    Many people are also worried that should the US economy witness a scenario like that of 2008 when all asset classes across the world headed southwards, then even gold will become extremely vulnerable to a fall. However, as study done by a firm Casey Research shows, even in the crash of 2008, gold ended the year with a 5% gain.

    Besides, there has been even more currency devaluation since that time and this makes the case for gold even stronger in the event of a 2008 like scenario.

    Thus, with answers to the two most important questions on gold pointing towards a pro-gold environment, it does make sense to start accumulating the yellow metal if one hasn't done it already. Just like other asset classes such as stocks and real estate, the current macro environment also calls for a reasonable allocation towards gold.

    We believe that at least 10% of one's total investable assets should be held in gold. Anything less than that and one is not preparing adequately enough for the economic storm that would most likely strike us.

      Rahul Shah (Research Analyst), Managing Editor, Microcap Millionaires has led the team from the front in developing some of our most stringent and rewarding research processes. As per his own admission, the turning point in Rahul's life as a financial analyst came a few years back when he got introduced to the works of Warren Buffett and Charlie Munger. From Buffett, he understood the value of investing in good quality business with powerful moats and strong management teams. Charlie Munger on the other hand inspired him to be a lifelong learner and use mental models in order to arrive at the crux of matters across most disciplines. Rahul firmly believes that in order to be successful at investing, you have to do the big things right and possess a great temperament and a contrarian streak.

     

     

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    1 Responses to "Is gold still a good buy?"

    Jayantilal Uttamlal Panchal

    Mar 15, 2012

    Yes. Can expect at least 18% appreciation in current year by DEC-2012 due big demand in INDIA and investment through MF / ETF / Direct .

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    Equitymaster requests your view! Post a comment on "Is gold still a good buy?". Click here!
     

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