Gold prices are doing well in a climate of war and uncertainty, but the yellow metal still does not make a great investment.
The phoenix is rising again. The centuries-old attraction for gold is intact, or even a bit stronger than before, as indicated by the latest price surge globally and even in the domestic market. The yellow metal has witnessed a price appreciation of more than 25 per cent in calendar 2002.
Like any other commodity, gold reacts to the basic demand-supply equation, but tends to be more volatile in war-like situations. In the last couple of years, when equities as an asset class have been faring poorly after the technology bust, and debt has not been so lucrative globally, conflict situations in various corners of the globe have helped gold re-emerge as a preferred hedge against uncertainty.
Paper currencies have clearly been losing ground to the yellow metal, a fact substantiated by the weak dollar value. In Japan last year, even small-time savers started investing in gold after the monetary authority decided to charge investors for parking their savings in banks instead of paying interest.
Though war fears in the Middle East and weak currencies have been partly responsible for the fresh interest in gold, the moot question is whether this trend will continue in the foreseeable future. While many analysts of international repute have been forecasting that gold will breach its all-time high of $414.80 per ounce in 2003, prices in India are expected to soar far beyond the all-time high of Rs 5780 per 10 gms.
It is very interesting to understand why Indian gold prices may shoot ahead of global highs. Most Indian gold is imported, and there is nothing domestic about it except for the people
