It is a myth that gold is a “safe” investment or that it delivers steady returns

Business Line Gold, only to diversify
K. Ananthapadmanabhan Sunday, 22 March , 2009, 10:09

Bangalore: Unlike stocks, where it is possible to arrive at a price target based on a company’s earnings potential, there is no scientific method to arrive at a “fair price” for a commodity. Commodity prices are purely a function of demand and supply factors, with the speculative element usually adding to the momentum on either side.

The prediction that gold will head to $2000 an ounce is thus based either on the study of charts (technicals) or on the fact that gold prices last peaked at $873 an ounce during the oil crisis of 1980. Adjusted for inflation, the 1980 peak equates to $2,500 at today’s prices. As is the case with all predictions, this one too is not foolproof.

Not so safe
Though gold has emerged as full-fledged asset class in recent years, it is a myth that gold is a “safe” investment or that it delivers steady returns. With gold prices remaining extremely volatile, investing in gold today for quick gains, requires as much of timing as do stocks. Gold, only to diversify Sify