Thursday, January 6, 2011

Alternative Investments : Gold?

Gold seems to be the investment on everyone's lips these days.

A financial guru's opinion was that it is a safe haven and given the uncertainty of the times we are in, it has much upside and will hit USD 2,000. (Today's price is USD 1371.00)

My take? It may be worth a bet but if you think about it - What do we actually use gold for? Jewellery? Dowry in places like India?

The answer is Gold isn't that useful and doesn't create value or generate income (unless you sell it).

The recent meteoric rise of it was due to the recent financial crisis as people fled to safety and also the pumping of monies from the western economies to save their economies caused a oversupply of cash and commodities/metals to generally rise.

As such, I think you are better off investing off in something that actually is useful such as copper which is required for the wiring and building key infrastructures in developing nations such as India, Indochina and China or even Lithium! Yes, Lithium. With the rise of use of electronics such as tablets, smartphones and even, electric cars, there is a genuine demand for lithium which is a key component to the batteries of such goods! Read more here for an interview with a manager of a ETF for Lithium :

If the economy recovers, you not hedge against inflation (which is why many people flee to gold) but you have more upside if the economy recovers.

I think we are in for better times rather than worse as after the bust in 2008, chances are we are going into a boom.

However, if you're still interested in Gold, you have to be aware on how you would want to invest in it. Shares of companies mining it? Actual physical gold bullion? Gold coins?

I shall find the elaborate the ways to invest in Gold generally and also in Malaysia in another post. Watch this space!

EDIT: Another reason why not to invest it gold - Its average returns just beats inflation - the stock market is best off -

"Gold, over the whole of the 20th century, rose from $20.67/oz in 1900 to about $300/oz in 2000. That’s a fifteen-fold increase in 100 years. However, if you sold a few years earlier or later you could have gotten $400/oz, so allowing the benefit of the doubt let's call it a twenty-fold appreciation over 100 years. That is equal to about 3% compounded annually which, coincidentally, was almost exactly the average rate of inflation for the century. So if you bought gold in 1900, you only broke even after inflation 100 years later. Your ounce of gold still bought you a suit of clothes."

Image credit : (Batman2000 |

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