Gold- Best Investment or a Bursting Bubble

Posted in Group Discussion (GD) Topics with Answers, Total Reads: 683
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6 people are having a discussion on the topic (Andy, Vicky, Peter, Tina, Sam and Betty)


Category: Economics


Group Discussion Starts

Andy: I think investment in Gold is safe , gold is safe investment because it is natural resources so we can’t increase the supply of gold but the demand of gold continuously increasing so there is no doubt that the value of gold always increase


Vicky: but how can u say that the demand of gold will also increase in future


Andy: I can say because India is traditional country and at the time wedding, at the time various function we buy gold as either gift .so it may possible demand will fall that demand is merchant class of society but the demand gold ornament will not fall...u can see as economist point of view gold rate continuously increasing as compare to previous year then also Indian market purchase more gold compare to last year


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Vicky: 50 % of population earth are in favour of gold as a symbol of love romance and gift. So the demand for gold ornaments and articles is ever increasing. Thus the demand is majority from India and china.


Andy: I true that. A recent survey by London based research group shows how sales / demand of gold has increased in China and surpassed that of India . This shows the love for the yellow metal


Tina: I believe Gold is not an Investment. Gold is money. You don't invest in Gold. You preserve your purchasing power in gold and definitely Gold is not in a bubble. It is the most disliked investment vehicle globally. Presently, it represents mere 1% of asset allocation in the world finances.


Sam : Exactly my View on the topic as well, investment in gold is not beneficial for economy, it holds money and creates shortage of liquidity in the market and it’s bad for economy


Vicky: Guys I beg to differ , gold is investment in the term of money gold is a method of future betting on the dollar and in stock market gold is used as currency we can diversify gold against stock market ,its fluctuating price also seems that it is a good investment in future


Sam : everyone is no into buying and stocking gold and it would be highly likely that we would reach a point of no resale value that would be considerable as profit for the owner .


Peter: Exactly! Gold does not provide regular return like stocks or shares via interests etc. and it requires the owner to sell to somebody at a premium to what he purchase the gold for to gain profit if any.


Betty: Gold value appreciate during inflation and is a better investment comparing with other cash related investments. Also Gold is priced on Dollar terms hence appreciation of Dollar works in favour of gold value


Sam : But since a high hedging on US dollar causes Gold value to be dependent on US fiscal and monetary policy . Though US economy is well developed, there are always scope or risk or uncertainty like the 2008 crisis etc


Tina: There is also this operational hurdles associated with gold extraction that have in recent times caused gold production cumbersome.


Andy: Can you elaborate what kind of operational issues you are trying to emphasis here.Also clarify as to how this will make gold undesirable investment option.


Tina: In the eco system, environmental conscious society the environmental degradation problem posed by the extraction process of gold is viewed upon as high damaging to the ecosystem and a lot of regulation are in place that makes gold extraction unviable.


Andy: So is the case with most metal , Yet the profit out of the finished metal is comparatively high which would easy incentives extraction companies and I do not see any issue in future for gold availability too.


Tina: When you talk of profit from gold production you seem to be missing out on the factor that the cost of extraction separation and refining to get final product gets magnified by these restriction. This causes mining and producing Gold undesirable.


Betty: As for Peters’ Point, there is always a safe option of buying shares or stock of company that trades, produces Gold. This way it would yield you positive return with limited risk compared to direct Gold purchase.


Andy: Gold is a high commodities entity, though several international trading on bonds, securities and currency is possible, they are largely influenced by macro economical social and political environment unlike gold which is largely unaffected by these factors


Vicky:  So to conclude from the discussion we say as tempting as it may be to buy a lot of gold in a struggling economy, one should not get carried away. Gold bubbles exist, and in order to prevent yourself from being over-exposed to any asset class, you always want to maintain a well-diversified portfolio.


Conclusion 

Whether an investment is best or not totally depends on our resources. If we have ample of money, substantial amount of investment in gold could be considered practical. And investment In Gold though very attractive now may soon burst and it’s better to be not over reliant on Gold and diversify the Portfolio of investment and move away from the traditional gold investment mind-set.


Facts related to the topic

• One preserves His/her purchasing power in gold

• Mere 1% of asset allocation in the world finances is in terms of gold

• But it holds money and creates shortage of liquidity in the market

• Gold rises in value when inflation takes hold.

• Since Gold is hedged on Dollar any negative volatility on US dollar Value severally affects Gold prices.

• There is the option of purchasing stock in a company that produces gold



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