Reference Auto

So, gold prices have scaled to Rs 32,000 for 10 grams and this is attracting many towards the yellow metal, as people think that the price of this precious metal could go up and up only, even in the long term (unlike stocks). Therefore, is it a good investment option in the medium as well as the long term?

The story of gold is similar to that of the stock market. Between 2001 and 2012, the stock market has seen a phenomenal rise.

It has been heading north (steeply) towards the first part of the decade but the northward journey has been arrested, and since the last three years, the Sensex, which is the stock market index of the top 30 stocks, has seen a fall.

The Sensex movement has been quite stunning. In 2000, it was in the range of 4,000 points and the year after, it fell to a range of 3,500 points.

It stayed that way in 2003 and in the next year, it surpassed 6,000 points. In 2005, it touched 6,600 points and in 2006 it scaled a whopping 3,000 points to 9,600 points.

The next two years were unprecedented. The Sensex touched 14,000 points in 2007 and in 2008 it skyrocketed to over 20,000 points.

But the slowdown of 2008 dragged the Sensex down to 7,700 points and in 2010 it touched 17,000 points. It has remained that way till date.

So, now there is speculation that the stock market has reached a point of saturation and the Sensex’s rise could be very gradual or slow. And, if it surpasses the 20,000 points-mark this year, it could bring in glad tidings.

So, basically the juice in the stock markets has just gone.

In contrast, the bullion or gold and silver markets are still giving a glimmer of hope to investors.

Gold prices were around Rs 8,000 per 10 gram in 2000 and today it is Rs 32,000, which is four times. But in contrast, the stock market has risen by over six times in that period.

So, why would the gold and silver markets go from strength to strength?

Traditionally, Indian families have been buying gold or silver to stock up ahead of the wedding of their children. That is, gold (and silver) is considered as the most precious gift (or dowry) in most traditional families in India during weddings even today.

Consumption of gold and silver in India is highest in the world as almost every family doles out these precious metals during marriage. And, this is unlikely to come down at least in the next generation. So, as the demand for gold and silver soar, the prices will move in tandem also.

Therefore, the value of gold and silver will keep on rising even if it means a slower growth and the gold investor (who buys hallmarked gold biscuits from reputed banks or shops but not jewellery) will see prices heading north and can surely keep it as an investment option even in the long term, unlike stocks.