The Comment Factory

During this economic crisis gold has been discussed umpteen times from a buy/sell point of view and its apparent ability to give a steady rate of return. But like all asset classes, it has not been completely spared in the meltdown.

On the London Metal Exchange, gold has been seen hitting the bottom at around $680/oz. sliding from its lifetime high around $1030/oz. It managed to bounce back and is currently trading at around $820/oz. No one knows how long this will last, and there is always the chance of a bull run. After all who would care to buy gold when everything else is being sold? Who can guarantee that gold rates wouldn’t fall further? Can’t gold go further than even its current lows?

Despite this, some old players in the commodity market say that gold is still the best hedge against inflation. Old fools aren’t they? I’m afraid not!

In India, a country where gold is worshiped. and brought home everyday by a million housewives, there’s one thing I’ve learnt: anytime you buy gold, is the right time. If you look at gold from an inflation point of view, you’ll get a clear picture.

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Let’s compare gold and inflation in India over three decades. In India, wheat is the staple food used to prepare Indian bread and its price to a great extent determines the rise in inflation. In the year 1978, the price of lowest quality wheat was Rs.1.60. A rise in inflation over the next year pushed the price up to Rs.2.10, which created panic and raised doubts about the ruling government back then.

However, today, the lowest quality wheat we get is for Rs.18.00. This means we have to pay Rs.16.4 extra after three decades, a staggering 1,025 percent increase. This also means that for every Rupee I would have earned in 1978, I have to earn another Rs.9.25 (almost ten times) in 2008 to purchase the same wheat.

Gold on the other hand was priced at Rs.40/gram in the year 1978. Today, in 2008 it’s priced at Rs.1250/gram (a 3,025 percent increase!) and still bought by every household in India. That’s probably the reason why our government have pushed gold quality to its highest standards by introduction of Bureau of Indian Standards (BIS) hallmarking. It’s so valuable that banks pass loans on mortgaged jewelry with a BIS hallmark.

Gold is more widely accepted than our MasterCards across the globe! For businesses selling gold ornaments, gold never stops circulating because everyday someone sells an old piece of jewelry to buy the latest in fashion. Currency, shares, bonds can be printed, but what about gold?

So if you’re looking to give your loved ones a hi-tech gadget this Christmas, which will be available for a tenth of its price next year, think again. Get some gold!