I couldn’t agree more with Debashis Basu’s assertion that gold investments are not exactly risk-free at current levels (“Pushing gold, without knowing the risks,” March 5). Apart from dollar weakness and demand from India and China, another reason for global gold demand is the fact that fiat currencies are held in poor light vis-à-vis gold. This perception got a boost when central banks around the world, particularly in emerging economies, started adding gold to their forex reserves.
Today, all of us, including the author, have the benefit of hindsight. But could we have said the same thing about gold in October 2008 when gold had fallen from $1000 an ounce to $700 an ounce? Gold rallied with a vengeance to $1900 an ounce by August 2011 thereafter but nobody can predict future prices. An annualised returns chart of different asset classes puts gold on top. That is why most of the fund houses (call them asset management companies or brokers or shops) come up with different variants of gold schemes because, currently, gold is selling like hot cakes.
When a prospective buyer goes to a shop and asks for a brand of biscuits and it does not have the particular brand, the buyer would rarely visit that shop again. Similarly all shops (companies, brokers and so on) of financial products try to keep and sell all kinds of products. The only difference in a physical product and a financial product is that the latter does not carry an “expiry date”.
I think the principle of Caveat Emptor (“let the buyer beware”) applies to financial transactions as well. If the investor was led to make a bad investment decision by an advisor, then the advisor is to be blamed.
Regulators cannot and should not control the market forces of demand and supply. If regulators start questioning each and every product, it will kill the product innovation. Regulators, however, must step in when financial products are either “Ponzi Schemes” or are designed to dupe prospective investors.
Vikram Kumar Arora, New Delhi
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