All that glitters need not be Gold

Implications: 1.Solid metal, solid returns 2.There is a huge appetite for investment in gold and gold investment funds provide an alternative to ownership of the metal. 2.There is a huge appetite for investment in gold and gold investment funds provide an alternative to ownership of the metal.

Analysis:  

With the weakening of the US dollar and stock markets shaken due to the subprime faultline, investors are on the lookout for a safe investment vehicle that can guarantee high returns. Traditionally, gold has been around for centuries as an investment medium but stocks provided easy liquidity due to marketability. But stock markets world over have become susceptible to influences such as political, geographical, economic etc., and prone to periodic volatility. Thus, stock markets have created an unstable investment climate where returns flattered to deceive. Other investment media such as currency is also influenced by factors such as trade balances, political climate, strength of the economy etc. Hence investors periodic pilgrimage to gold.

Due to gap in supply and demand of gold, gold investment funds are gaining in popularity. Several funds have launched exchange-traded funds (ETFs) for gold known as gold ETF. Under gold ETFs an investor cannot get physical delivery of gold but can get units of the funds, which provide returns that closely correspond to returns provided by the price of gold. Once the gold ETF is listed on bourses, investors can buy or sell units of ETF through secondary market operations. Gold ETFs provide a feeling of ownership of gold without physically owning it.

There is a latent craving for gold in everyone. Since the dawn of civilisation gold has been the sole motivational force for invasions, war and treasure hunts. Therefore investors craving for gold is nothing new. Gold is an undervalued metal and apart from India and perhaps China individual ownership of the metal is negligible. The current climate in the world markets has thrown up a need for a reliable alternative investment product and gold can fulfil that need more than silver or any other metal. The fundamentals for investing in gold are stronger now and some of the reasons could be :

1.Weakening of the US dollar and consequent strengthening of other currencies.

2.Gold is short on supply and long on demand. There are fewer gold mines. Hence the gap.

3.Shuffle in interest rates could push gold prices thereby creating an alternative investment source.

4.Renewed interest in gold due to stockmarket volatility

With gold giving higher return, gold ETFs in world markets have also gained in importance with current investments under management crossing USD 15 billion.