Gold: What to do now? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Gold: What to do now?

Jun 25, 2013

Take your minds back to October 2008. You'll recall that the financial world was in total disarray. The US banking system was in great trouble and what more, its problems were leaking into the general economy. There were depressed sentiments everywhere. Unemployment was inching higher, business sentiments were low and investments were faltering. Clearly, the US economy was in the midst of one of its darkest days.

Then came an editorial in the New York Times urging people to buy American. The man making the suggestion was none other than Warren Buffett, arguably the most successful investor of all time. And why was he urging people to buy? Well, it was because of a simple rule that dictated his buying all his life. And the rule is nothing but to remain fearful when others are greedy and greedy when others are fearful. It was indeed one of the most fearful times in the history of the US economy. And people who would've heeded Buffett's advice and would have bought into fundamentally strong US stocks back then would have certainly laughed their way to banks.

We believe something similar seems to be happening to gold right now. It is making one low after another with each passing day and headlines everywhere seem to be negative as far as the outlook on the yellow metal is concerned. Unfortunately, given Buffett's aversion to gold, there's going to be no article by him this time around.

But what we can make use of is his simple rule to investing. In other words, will being greedy about gold at a time when others are fearful make sense from a long term perspective? Or buying into gold right now would be akin to catching the proverbial falling knife.

We believe what's happening to gold right now is nothing but a result of gross misconception. The misconception that the global economy is on the mend and the inflation has been well and truly tamed. Nothing could be further from the truth though.

Problems facing the global economy and US economy in particular have hardly been solved. Long term fundamentals remain as weak as they were few years ago and there seems to be no solution in sight.

What's causing gold prices to crater is that these problems have not yet made their presence felt. Sooner or later though, the reality will rear its ugly head and then everything could change. Seeing inflation wreak havoc on their savings, the 98% of US investors that don't hold gold right now would rush to buy a piece of the yellow metal, pushing gold prices much, much higher.

Thus, while gold seems to be out of favor with most investors right now and could even go down from here as most asset classes in correction mode do, the long term trend of higher gold prices seems pretty much intact. Therefore investors would do well to start stocking up on the yellow metal if they haven't already.

Rahul Shah

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.

Equitymaster requests your view! Post a comment on "Gold: What to do now?". Click here!

1 Responses to "Gold: What to do now?"

Shahrukh Vevaina

Jul 28, 2013

Perfectly analysed. The current status of the American economy along-with the upcoming (once again since earlier postponed)re-payment of Sovereign debt and the huge interest burden thereon, will definitely result in a RUN for the ONLY imperishable GOLD. iT IS AWESOMELY GOOD ADVICE TO SHORE UP ON ONE'S GOLD Stock. HAPPY INVESTING.

Equitymaster requests your view! Post a comment on "Gold: What to do now?". Click here!

More Views on News

Data is the New Oil but It's Also the New Sugar. Here's How to Fight it (Profit Hunter)

Jun 1, 2020

Is too much data hurting your quest for market beating returns?

Quantum Mutual Fund: Hum woh nahi hain (The Honest Truth)

Apr 29, 2020

Ajit Dayal on how the mutual fund industry robs you of your wealth.

This One Trigger Could Turnaround Yes Bank's Stock Price (The 5 Minute Wrapup)

Oct 16, 2019

If Yes Bank manages to do this, it could be the start of a much-needed turnaround for the bank.

Gold could Hit 40,000 Sooner Than Expected (Profit Hunter)

Aug 16, 2019

Domestic gold prices are firing on both engines now. Gold prices could touch 40,000 faster than you could imagine.

3 Rebirth of India Opportunities Are Racing Ahead in These Gloomy Times... (Views On News)

Jun 28, 2019

Tanushree Banerjee shares an update on the Rebirth of India and reveals her top 3 trends...

More Views on News

Most Popular

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

I Believe These Stocks Will Deliver the Most Outsized Returns in 2021 and Beyond (Profit Hunter)

Sep 23, 2020

Rules of the racetrack can help you bag the biggest gainers of the coming decade.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms