Is gold good Investment?

(D. H. Pai Panandiker is the President of RPG Foundation. The views expressed in this column are his own)

By D. H. Pai Panandiker

Since 2001 gold has been an attractive investment with an yield higher than on many other assets. That yield came from the price of gold which has consistently risen in the past eight years.

In the Indian market, the price of gold had shot up from Rs.1,180 per gram to Rs.1,470 in the last one year though the international price of gold was more or less stable. Gold became more costly in India only because the rupee depreciated against the dollar.

Gold has been a traditional form of investment apart from being a favorite gift at marriages and festivals. That is because, earlier, there were no alternative assets, except land, to invest in and, unlike land, gold was the most liquid asset with a ready market at all times and in all places.

Even today, when there are good alternative assets available, gold continues to attract a good deal of investment. Gold imports have been in the range of 400 to 800 tons per year and the total stocks of gold in India have exceeded 13,000 tons. That makes India the largest buyer of gold in the international market. The demand for gold this year has however been down partly because the price of gold has been high.

The price of gold has gone through long cycles. It touched $ 850 an ounce in 1965 and thereafter suffered a long bear spell. By the end of the nineties gold was down to $300. Since 2001 gold regained its place in asset portfolio of institutions and individuals as its price began to shoot up. In the last eight years prices trebled.

Will gold continue to be a good investment? Not in the short run. For, the bullion market is likely to be over-supplied with gold.