On gold prices and why you shouldn’t listen to me

by Manshu on August 7, 2012

in Opinion

Gold prices are one area where I have been fantastically wrong; I’ve written twice about how I have stayed away from gold, and gold price movement during that time has shown how wrong I have been.

Kartavi left a comment the other day which illustrates this very well. Here is the comment.

Kartavi July 17, 2012 at 8:16 pm [edit]

Manshu,
You have posted on the topic ‘opinion on gold’, twice (March-09 and on October-10).
I think its time to review the opinion again. Please review in terms of indian rupee (and not USD) since whenever gold had come down (in USD) it has not down in INR due to Value of the rupee against USD. “Aare bhai, bahar ki duniya me sona gire ya chade… apne yanha to badhta hi hai…to chhote INVESTER ko kya karna chahia ?”
Regards,
Kartavi.

Here are the two posts about this:

Gold is the next bubble

My opinion on gold and silver

As a follow up, I would say that you shouldn’t seek my opinion on this because I have been so wrong on this already, and I don’t have much by the way of opinion also because my position on this is unchanged.

When something gets as popular as gold has for the last few years, it is natural for it to get the attention that it’s getting and more and more people flocking to it. Eventually, everything that grows disproportionately comes down as well, and in gold’s case I feel it is disproportionate but I have been proved wrong so far.

Kartavi makes a very good point of gold returns in INR and how the USD – INR price movement has impacted the price of gold. When you buy any asset that’s priced in a currency other than the INR, currency price movements make a difference and this is easy to understand with things like the Motilal Oswal NASDAQ ETF which rose a lot more than its underlying index NASDAQ due to Rupee depreciation, but I think it wasn’t very clear how big of a difference exchange rates make to gold prices before the movements of the last two years. But now it is quite clear that if the Rupee were to appreciate for some reason, gold will go down, by how much, no one knows. So, in taking a position on gold, you’re really taking two positions, one on USD-INR and the second on gold prices.

{ 5 comments… read them below or add one }

Ashok August 7, 2012 at 8:39 am

Fantastic piece yet again. The true mark of greatness is humility… to acknowledge that you have made a wrong prediction. I also am a gold pessimist like you but have made a little investment in Gold ETFs ( 1.5 % of my investments ) and sitting on a decent profit. I have not been making any new investments for the past few months.

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Ramanji August 7, 2012 at 11:40 am

“I would say that you shouldn’t seek my opinion on this because I have been so wrong on this already” to bold a statement to publish and too humble to accept. My best wishes, this will surely help you to grow bigger with values. 🙂

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Malaikolundu Kuppuswamy August 7, 2012 at 4:50 pm

Yes! I do have same view as that of you.It is only dead investment like that of our dwelling unit in my view. In fact, I have sold 120 grams of Gold jewellery at Rs.440/- per gram in 1993 or so due to my above belief. Due to relentless increase of Gold prices and my wife’s persistent demands, I have invested a part of that in HDFC Gold ETF in 2011 like many others
_ Malaikolundu Kuppuswamy,Chennai

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Shiv Kukreja August 7, 2012 at 6:36 pm

Probably this time investors should follow Contra Investing and avoid Gold… Just a thought!!! 🙂

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Sridhar August 8, 2012 at 8:50 pm

Hi Manshu,
Every asset including gold as its own bull and bear cycles. We have seen gold go up to $1900 internationally and beyond Rs.30,000 per gram in India. In the past few decades as financial markets become organized and use technologies like online trading (without the need for physical shares or certificates). In the olden days stocks were not so easily accessible to small investors due to the costs, time and effort involved in physical handling and delivery, due to which it was restricted to major cities. Today stocks, gold and other assets are coming to electronic or demat format and this makes it accessible to investors across the country.

Gold is now becoming an investment class, not just for people who buy jewelery or coins or bars, but for all. Even people who dont use can invest in it through ETFs, so lets be updated with changing technology and changing times.

Assume that Manshu predicted the gold crash around $1850-1900 levels (per ounce) in international market his prediction is right but this doesn’t mean Gold is not attractive because it has since corrected below $1500 and now inched up to $1600 or higher. There are several stocks which lost significant value in the past two years – including some good stocks. Does it mean that equity or stocks are to be avoided? No not at all.

Its a good idea to invest with long-term view by adding more on dips and declines. No one can say with 100% confidence that he/she can buy a stock at the lowest price and highest price consistently on all trades or investments. The extreme ups and downs have to be taken as anomalies and ignored as long as there is nothing wrong with the asset (be it a stock, gold ETF, bond, etc). There will always be upswings and downswings in markets as in real life. Having a diversified portfolio with allocation across different asset classes is always a good idea.

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