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Book Review: The Sweetness of Life

How often do we come across a book that is so small, powerful and yet so poetic? The...

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Gold: Many wrong beliefs, strongly held

In an enlightening session on Gold at the Moneylife Foundation Knowledge Centre today, Debashis Basu, editor and publisher of Moneylife used decades of data to expose many myths about gold that are (freely available and strongly propagated on the Internet) and strongly held by both retail and institutional investors. He also suggested what should be the correct approach to gold buying

On occasions such as Akshaya Tritiya and Dhanteras, which are considered as auspicious days for buying gold, the demand for gold as investment and jewellery goes up. In India, gold is bought for various occasions. The demand peaks around the festive and the wedding seasons. But should gold be a significant part of your investment? In nominal terms the price of gold has more than tripled in the last 20 years, despite the recent crash, this makes it a very attractive asset class—with the benefit of hindsight. But what we do really know of gold prices? In a special seminar on investing in gold conducted by Moneylife Foundation, Debashis Basu, Moneylife Foundation trustee and editor of Moneylife magazine, explained the various myths about gold as an investment and what really drives the price of gold. Similar to the seminars exclusively on gold in the past, this one too received a huge participation of Moneylife Foundation members.
 

Mr Basu gave the participants a brief of the history of gold. Gold may go back to a thousand of years, but it’s only in the recent century where its fondness as investment has grown. Mr Basu explained why gold is such a unique commodity and then further explained how gold was used as money. On going into history Mr Basu showed that crashes such as the recent one is inherent with all market-linked products and since gold is one, nobody should be surprised. Many investors just look back 10-15 years, but to get the true sense of an asset one needs to go deeper into history. Mr Basu took the participants through the gold bubble and bust of the 1980s. Many buy gold because they consider gold as a safe haven or an inflation hedge. But these are all myths as they are not supported by long term historical facts. Through the help of graphs and charts, Mr Basu addressed five different myths regarding the precious metal.
 

If you are interested in reading more on the myths about gold, go ahead and read our Cover Story: Gold Turns Cold
 

Finally, he explained the six main factors that drive gold demand and how little we know about them. Unlike other assets there is no way to value gold. There are many complex and global factors that affect the price of gold, he explained. Not even institutional investors keep a regular track of them or have a model to use them to arrive at a fair value of gold.
 

The presentation was followed by an interactive session where the participants put forth their queries on gold.

User

COMMENTS

pawan

4 years ago

Mr. Basu,
It is disappointing to see your presentation on gold turns cold. Everybody from a villager to a housewife knows that gold prices fluctuate over periods. what is new about it? just because it has fallen in last few months has compelled you so much to put a presentation on the same.

I am not an advocate of gold but would put that the asset class with highest emotion involvement is GOLD(at least in India). This lets people buy it and hold it. It is the only asset class where people are not perturbed by fall in prices. and so, this is the asset class which they hold for the longest period of time. This asset class gives financial security to people in their dire needs. THis is the single most reason why it is and should remain an important asset(forget all other worldly theories of economists, experts etc.)

You and all should understand that peace of mind is a very important factor for any investor and gold gives that sense of security to the investor. not all things we buy give valuable returns. most of the things we buy are emotional purchases, which in turn make our life beautiful for us.

My mother who is 68 year old and simple housewife(only 12th pass and not chartered accountant) shared a simple thought with me. I would like all to read this.

value of 1 kg gold is sufficient for a reasonable marriage expenses and 2kg gold can fund a lavish marriage. THis was true in 1971 when gold was Rs. 250/10 gms, again was true in 1987 when gold was 4600/10 gms, was gain true in 2000 when gold was 6000/10 gms and is true even today when gold is around 28k. Period.

REPLY

hasmukh

In Reply to pawan 4 years ago

Gold is good but not for investment.The persons who benefit the most are the Jewellers' community, who make lot of money at all times : when you buy gold or when you sell it. and you are not assured of the full money. Security is never guaranteed as when one sells gold ornaments, he may face deficits in the form of labour charges, impurities etc.

pawan

In Reply to hasmukh 4 years ago

1. Who is to decide whether gold is good to buy or not. Anybody who buys gold is happy. Anybody who has gold is happy. It is only the experts who crib about it. Try gifting your family some gold and see their reaction.

2. Food & Beverage Industry and Clothing industry has higher margins than jewelry industry. It means one should stop buying food articles and clothes and live without these. why do people worry about the businessmen's margins. why dont you get into details of the risk a jeweler or any other businessman carries in his business. If not convinced, try getting into one.
3. Gold and jewelry are two different products. Investment is talked about in Gold and not jewelry. One has to understand the difference.

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