X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Gold in bubble territory? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Oct 21, 2009

    Gold in bubble territory?

    When the price of an asset class goes through the roof, it always helps to step back and put things in perspective. And if there's one asset that deserves this kind of scrutiny in recent times, it's the yellow metal gold. Indeed, gold has been on a sustained rise in the past few years and is creating new price records with constant regularity these days. But is the rally sustainable? Maybe not if a few experts are to be believed. According to Moneynews, fundamentals for gold do not seem to support the current lofty prices. Fortune, a popular magazine has reported that gold mines have invested US$ 40 bn into new projects since 2001, a sign that supply will rise. Also, fear of a collapse in the financial markets had led some hedge fund traders to bid up the price of gold to record levels. However, with some companies reporting strong earnings numbers, even this fear seems to have subsided.

    Some people have gone to the extent of questioning the long term track record of the yellow metal. And there could be some merit in their argument. People who would have invested in gold at its previous peak in 1980 would require it go to US$ 2,312 per ounce (approx Rs 32,000 per 10 gms) just to stay even with inflation. The answer to whether a similar fate awaits investors who would buy into the yellow metal at current levels cannot be given with a great degree of certainty. Hence, it is advisable to invest in gold in a staggered manner and not keep a large portion of one's savings in it. No doubt it's a good hedge against inflation but if the economy recovers, there could be better options around like stocks and other commodities.

    Dragon nation's big dilemma
    In the aftermath of the global financial crisis, China's export driven economy was in danger of coming down with a big thud. However, the government turned out to be farsighted enough. It quickly filled the void created by sharp drop in exports by unleashing a huge US$ 586 bn stimulus program. Now, few months down the line, it can look back at its decision with a great deal of pride. Not only did it manage to beat the slowdown but also restored investor confidence in the country's stock markets. The country's economy came out of the third quarter recording the best growth amongst all the three quarters for the year. As per Bloomberg, state directed support made up more than 80% of the growth.

    The stimulus binge ends sometime next year, putting before its policymakers perhaps one of the biggest challenge in recent times. While it may have the wherewithal to unleash another round of stimulus, the economy may not be in a position to absorb so much money. It could ultimately lead to inefficient lending and could potentially create asset bubbles in stocks and properties Hence, continuing with the stimulus may not be a smart thing to do. On the other hand, if it withdraws stimulus more than required, the economy risks heading towards the slowdown once again. All said and done, the country will have to develop new avenues of growth like its service industries and ensuring easier access to consumer products and credit so that areas like domestic consumption could be boosted. Also, China might have to get use to lower economic growth, say in the region of 6%-8% as opposed to the 10% growth that it had managed to achieve for most of last decade. However, that could be easier said than done as the government has been postponing difficult and painful reforms. Indeed, the road ahead does not appear to be smooth for the country expected to take on the mantle from the US in the 21st century.

     

     

    Equitymaster requests your view! Post a comment on "Gold in bubble territory?". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    The Key Factor Pushing Gold Up These Days (Outside View)

    Aug 21, 2017

    PersonalFN explains the chief factor pushing gold prices up of late.

    How Unique Are the Companies You Invest In? (The 5 Minute Wrapup)

    Aug 21, 2017

    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 21, 2017 (Close)

    MARKET STATS