Gold Rush

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In recent months, the interest in gold has grown palpably among investors across the world. Among the key reasons contributing to this sudden interest in gold is the fact that other asset classes, like stocks and bonds, seem very risky today. So, in a sense, there is a flight to safety as one would expect. And the fact that gold, relative to such assets, has been a very poor performer over three decades has only made it appear more attractive.

Data source: World Gold Council


The graph shows how gold has returned, in different currencies, since the start of 2007. It is apparent from this self-explanatory graph that if you were invested in gold, in US$ terms, your investment would have been by far the best performer. But if you were invested in Indian Rupees (which you are), you did not fare all that well. But if gold is a standard commodity, why is the return different in terms of different currencies?

The answer lies in the exchange rate. In recent months, the India Rupee has appreciated significantly against the US Dollar. As a result, the gains made by gold in the international markets have not entirely passed through to you. And if the general expectation that the Rupee will appreciate further were to turn out to be true, then you can expect this disparity to continue to exist.

Comments

  1. CROWOctober 5, 2007 at 9:35 PM

    Really nice Article !!

    Few questions

    As Diwali is approaching, do you feel demand of Gold will go up in market??

    If yes then will India import volume will increase ???

    If yes then as rupee is getting stronger so do you feel this will impact Gold import/export ??

    If no then how they will meet INDIA gold demand during festival season ??

    Wht ROLE RBI is playing to stabilze overall impact ???

    Sorry too many questions :)

    ReplyDelete
  2. AnalystOctober 6, 2007 at 5:33 PM

    Crow your answer by an Eagle.
    This one is not bald yet :)

    1. Demand will go up. but not only due to people buying for festival, but also due to investment(ETF) to hegde against the volatile stock mkt.

    2. Import volume will be up from last year. ( See my latest article)

    3. Rupee growing strong, but gold prices in world market also increasing. Both will nullify the effect. so import will only be dictated by demand.

    4. Demand for gold will increase, import will also increase the price for gold will increase in next few months.

    5. I don't think RBI will intervene in the market. Market forces will take care of gold prices. ( This will be due to introduction of ETF).

    ReplyDelete

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