Why Should I buy Gold?

by Amandeep Singh

in Investment Basics

All of us find reasons before making any kind of investments. A couple of days ago, I was in the same dilemma and I was asking myself the reasons why I should buy Gold.

Here, I am listing a few of them that I had in my mind to justify my thought of investing in gold and also, while browsing on the internet, I came across some interesting reasons behind why at all should one invest in gold. However, let me warn you that I do not have any trading interest in gold, but do have an investment interest in a company called Deccan Gold which is the only gold company listed in India.

Here are the reasons:

1. According to experts, the total world gold production is decreasing. I was surprised increasing selling prices make it attractive to search so production should increase. This is what happens in theory, but it is getting to be more difficult to prospect, mine and produce gold.

2. The gestation period even for gold which is spotted is quite long. According to some experts it is as high as 10 years. Hence gold mining companies prices go up over long periods and in a lumpy kind of a fashion. If gold is found it goes up, if mining starts prices go up, if production starts, prices go up. So be careful while buying a gold mining company.

3. Chinese demand is likely to go through the roof. Very few people understand the Chinese economy. If the population does not trust its currency, they are likely to keep their money in gold! The Chinese government had banned the population from owning gold for a very long time. Obviously once the ban gets lifted buying will start (it happened in US if you remember). It may take 2-4 years by which time the retail network to sell gold to the whole Chinese population is set up. Once it is set up, prices will boom.

4. Indian demand is difficult to predict. However, there is some talk of Jewelers suicide in Kerala (with prices rising, consumption is going down, so shopkeepers are dying). However, there is a huge “wannabe” population which will keep buying and chase prices! Be that as it may, selling may not be enough to exceed demand; another cause for prices to go up.

5. Investment demand is high: All fresh bankers are busy selling gold mutual funds. This is a funny situation where the price is going up because the fund is buying. People are buying gold ETF/regular funds which is causing gold prices to go up! Case of tiger chasing its tail. 6. Governments attitude towards gold can be foolish and slow. The rich countries which have a lot of gold (including IMF) have a pact wherein they will not sell more than 400 Tonnes a year (not sure about the figure). This will restrict supply on the one hand, but mutual fund demand will drive the prices.

7. Bank relationship managers are pushing gold mutual funds, websites are screaming that gold is a good buy, people without understanding of interest, compounding, etc. think this is a great ideal This almost blind and noisy screaming will push prices high. Most fund managers are buying with a vengeance! So, what is your view on investing in Gold? Your feedback is always appreciated. Do give your views in the Comments Section below.

{ 12 comments… read them below or add one }

Gabe | freebloghelp.com October 27, 2009 at 5:06 am

Great tips on buying gold. People who bought gold in the last year are pretty happy today.

Reply

Amandeep Singh December 9, 2009 at 1:24 pm

Yes Gabe, very rightly said. The yellow metal has shown great returns in the last few months too when the markets were crashing… 🙂
.-= Amandeep Singh´s last blog ..EquiTipz is reborn, to deliver you more… =-.

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Rajesh Kanuri @ TechCats December 11, 2009 at 2:23 pm

according to the market sources gold will soon cross the 20k benchmark..
.-= Rajesh Kanuri @ TechCats´s last blog ..Thank Your Commentators with Thank Me Later Plugin =-.

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Amandeep Singh December 11, 2009 at 2:40 pm

Yes that is true Rajesh.. we will further see the rise in the prices of the yellow metal as the demand is increasing day after day…

After the deep fall in the markets seen in the past, the investors are taking calculated risks and still feel Gold as a safe investment. Wonder I had invested some 🙂

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Krishna December 14, 2009 at 7:07 am

HI,

Now there is a small correction in the gold prices. There is a down trend till this year end, it is because of the US dollar value rise. But, the gold prices will start increase from the Jan, 2010. It is the experts prediction. If you would like to buy the gold, this is the correct time.

Thanks,
Krishna
.-= Krishna´s last blog ..Don’t lose control of your finances this Christmas =-.

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Amandeep Singh December 14, 2009 at 2:25 pm

Very true Krishna, as I already said earlier, the demand/supply is also going to have an effect in the increasing prices….
.-= Amandeep Singh´s last blog ..Should I prepay my loan or Invest the money? =-.

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swiz February 11, 2010 at 11:43 pm

I wish I would have gotten aboard the gold bandwagon a year ago…it sure would beat the heck out of my mutual funds, that are losing money every month. This is even after the original bump up, so over the long term I am way down.

Thanks for the insight. I think you helped me make my mind up.

Reply

Amandeep Singh February 12, 2010 at 12:12 pm

Swiz… everybody including me is wondering if we would have entered gold at the right time rather than Equity (direct or MF)… Gold has shown sharp rises in the past months and now at these levels everybody is a bit scared that they may see a fall again.. but I am being positive on Gold.. Lets see what surprise gold poses… 🙂

And I am very glad that this article helped you in some way… Welcome to EquiTipz… 🙂

Reply

Bilal Ahmad April 5, 2010 at 6:48 am

I think the gold prices will always be high, so it is good decision to invest in gold.
.-= Bilal Ahmad´s last blog ..Latest Warid Offers- Send International MMS =-.

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nifty live charts September 25, 2010 at 10:16 am

Gold Price can never be high. when the Market falls Gold price goes up with high speed. as people exit from equity and buy gold.

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Cheryl Jones January 2, 2011 at 1:06 am

If you go to the site you will find a video by Ron Paul that will explain why gold is a good investment. It is to protect against the devaluation of national currencies.

Reply

Amandeep Singh February 24, 2011 at 5:58 am

Thanks for the link Cheryl… 🙂

Reply

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