Gold is currently priced at nearly $1300/oz. To me it is nearly insane the way gold prices have jumped in last one year. Since Sep’09 the gold prices have jumped nearly 30% up.
By far this has been the most profitable asset class for investors who were already riding on the investment bus. But for new entrants I see a disaster. I see a bubble forming which will burst any day. But if at all this is a bubble is not known? Other competing causes that may also drive the gold prices up is the weakening dollar and Asian government (like China, India, Saudi Arabia, Bangladesh, Sri Lanka) buying Gold like mad. Dollar is one asset which can be manipulated. Government printing more notes often decreases the strength (purchasing power) of dollar. Hence people (investors) start accumulating a better asset than cash/ cash related assets. Gold is one of the best investment options available with investor which works as an excellent wealth hedge. Gold is a precious metal whose availability is limited. Unlike currencies people cannot print excess gold for greedy gains.
But why dollar is getting weaker?
The strength of a dollar is supported when other countries keeps US dollars as a reserve. Countries do this with expectation that they will use this dollar to effect imports (by paying in US dollars) and/or by lending the same dollar back to US at higher prices. This is common; the dollar saved in the vaults of neighboring countries maintains a demand and supply balance. If supply of dollar is more than its demand the dollar becomes weaker. When government prints too many notes the supply increases (for the same demand) and hence the dollar weakens. Ideally what government should be doing is to first create a demand and then print notes. This demand shall have a characteristic of adding value to the buyer. What I mean to say is that US economy has grown to such heights only because in the past they had legendry entrepreneur’s who innovated such valuable products which added great value to the whole world. But now US is more focusing on spending on Defense Machineries which actually add little value for the masses. Moreover except few geniuses still left in the country, all others have forgotten the theory of innovation required to make profits in business. So when we say that dollar is getting weaker because of printing of notes is not a complete statement. The dollar is getting weaker also because of wrong government spending (focused on wars and defense) instead of infrastructure, energy, exports, research and development, and above all increasing their competitiveness. The Asian market has quality and cheap labor in abundance. The over heads of operating is unit in US almost double than in any Asia countries. This is the reason why all companies are opening units in Asia and fleeing US. This has also contributed to US government’s dependency on printing money, as they do not have to buy ‘muscle power’ of extracting money form the reserves of Asia countries. When I say muscle power I do not means another war, I means increasing demand for US products & services by energy, exports, research and development and increasing competitiveness.
In last few days Gold price has plunged below Rs 28K. Investors are facing losses from current equity market fall (the market slipped nearly 900 points in 2 days) and it has been observed that to make up for this loss investors are selling their gold holdings.
Conclusion
So investors are speculating that Gold prices will go up further. I do not have a doubt that gold prices will go up but we must also remember that the main factor contributing to this gold rush is weakening US dollars and mad rush in Asian market to buy gold. No way is US government going to allow dollar to weaken further and buying of gold will stop some day. So I would like to warn those people who are riding fast on this mad gold terrain this is eventually going to stop. It will be like a stock market crash and gold price is bound to fall. Stop speculating on gold and think innovative. Create a product that adds value to the population and mother earth. Innovation is like a small heart inside which keeps the money circulating in the economy. Be Innovative and stop your run for easy money.
Gold Price since last 8 decades
| Year | Rs per Tola (10 Grams) | Year | Rs per Tola (10 Grams) | Year | Rs per Tola (10 Grams) | Year | Rs per Tola (10 Grams) |
| 1925 | 18.75 | 1946 | 88.62 | 1967 | 162.00 | 1989 | 3,200.00 |
| 1926 | 18.43 | 1947 | 95.87 | 1968 | 276.00 | 1990 | 3,466.00 |
| 1927 | 18.37 | 1948 | 94.17 | 1969 | 284.00 | 1991 | 4,334.00 |
| 1928 | 18.37 | 1949 | 99.18 | 1970 | 293.00 | 1992 | 4,140.00 |
| 1929 | 18.43 | 1950 | 98.05 | 1971 | 202.00 | 1993 | 4,598.00 |
| 1930 | 18.05 | 1951 | 76.81 | 1972 | 278.00 | 1994 | 4,680.00 |
| 1931 | 18.18 | 1952 | 73.06 | 1973 | 506.00 | 1995 | 5,160.00 |
| 1932 | 23.06 | 1953 | 77.75 | 1974 | 540.00 | 1996 | 4,725.00 |
| 1933 | 24.05 | 1954 | 79.18 | 1975 | 432.00 | 1997 | 4,045.00 |
| 1934 | 28.81 | 1955 | 90.81 | 1976 | 486.00 | 1998 | 4,234.00 |
| 1935 | 30.81 | 1956 | 90.62 | 1977 | 685.00 | 1999 | 4,400.00 |
| 1936 | 29.81 | 1957 | 95.38 | 1978 | 937.00 | 2000 | 4,300.00 |
| 1937 | 30.18 | 1958 | 102.56 | 1979 | 1,330.00 | 2001 | 4,990.00 |
| 1938 | 29.93 | 1959 | 111.87 | 1980 | 1,800.00 | 2002 | 5,600.00 |
| 1939 | 31.74 | 1960 | 119.35 | 1981 | 1,645.00 | 2003 | 5,850.00 |
| 1940 | 36.04 | 1961 | 119.75 | 1982 | 1,800.00 | 2004 | 7,000.00 |
| 1941 | 37.43 | 1962 | 97.00 | 1983 | 1,970.00 | 2005 | 8,400.00 |
| 1942 | 44.05 | 1963 | 63.25 | 1984 | 2,130.00 | 2006 | 10,800.00 |
| 1943 | 51.05 | 1964 | 71.75 | 1985 | 2,140.00 | 2007 | 12,500.00 |
| 1944 | 52.93 | 1965 | 71.75 | 1986 | 2,570.00 | 2008 | 14,500.00 |
| 1945 | 62.00 | 1965 | 83.75 | 1987 | 3,130.00 | 2009 | 18,500.00 |
| 1945 | 83.87 | 1966 | 102.50 | 1988 | 3,140.00 | 2010 | 26,400.00 |
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