Almost every body whom I meet asks me this question: “Should I buy gold?”. My answer is never straight (everybody around me says that!!). So I ask “Why?”

The answer always is : “Because it is going up.”

To me this answer is scary and completely stupid. If every body is buying an item because it is going up…what happens when it is coming down? Who will buy? If nobody buys how will you sell?

To me if everybody is buying because it is going up, it is perhaps time to sell! Sounds logical? Frankly I have no clue.

If I have  bought shares of Mahindra Holiday resorts, Cholamandalam Investment, Areva, Oracle,….it is not because the share prices are going up. It is because there is an underlying business which is doing well, so THE EARNINGS will go up, it has decent management, AND THEREFORE either the p/e will increase (multi bagger) or the higher EARNINGs will ensure a higher price (growth rate higher than inflation)…so gold beats me.

I have as many reasons for selling gold as I have for buying it, but ‘my commodity broker says price will go up’ is too dicey a reason to buy gold.

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  1. For me it is for my daughter’s marriage (consider as gift/dowry or whatever) which is at least 20 yr way (she is 7 months old),each small step at a time, counts !!

  2. Dr Mohammed Ali Khan

    They did a reasearch about the purchasing power of gold. I think oxford.. They found that the purchasing power of gold has been remarkably consistent for the past 400 years in Europe.( assuming of course one purchases the goods that were available 400 years ago ). So gold is one of the best hedge against inflation.

  3. only thing history teaches you is ‘you cannot learn from history’. LOL. There are many pockets of ’30 years’ when gold would have given a sub inflation return. For example if you take the period of 1980 to 2005 it would have been a disaster, but change it from 2002 to 2010, it will look good. In commodities timing is very, very important. In equities SIP helps. In commodities SIP may not help…so strategies have to be different. I have friends who make tons of money in trading -but they are terrific professionals not playing on hope and luck 🙂

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