Gold: buy or sell?

Most mothers (in India for sure, internationally, I do not know) are telling their sons and daughters – Gold is far better than the shares that you have. In the last 1 year it has given 32% return vs. -45% in your shares, so buy gold.

To most common people this looks like good common sense. Does it not?

Well my take is as follows (as usual I am here to confuse you even further):

Reasons to buy gold:

1.    For bailouts all governments are printing money – so inflation will be high. When inflation is high, gold prices will go up.
2.    All fund houses are pushing gold funds, all channels are saying gold funds are doing well all individuals are rushing to gold funds, so you also should.
3.    In case there is a scare people rush to buy gold, so in such times of uncertainty you should buy gold.
4.    Other metals like copper, aluminium, silver, etc. are not doing well, so you should be buying gold.
5.    They do not make it any more! As the demand in China and India increases, prices of gold will increase so you should be buying gold.

I could not think of many more reasons, but as usual I can also give you many reasons to SELL gold. They are:

1.    It is a contrarian call – when every body is buying, maybe selling makes sense (oops you could have gone wrong last month!)
2.    The units of oil, aluminium, silver that you can buy with one unit of gold is at an all time high. Normally the correction starts when you hit such new highs.
3.    If all the governments ‘know’ that printing notes is not as sensible as ‘selling’ gold from their reserves, will they not resort to selling gold? A little selling by Germany and USA is enough to meet the appetite of all the RETAIL demand for gold consumption!
4.    Bet against the over-rated analysts – who have predicted a bull run, is it not worth betting a little against them
5.    I have no idea about China, but the Indian consumer will baulk at the price. In Delhi and Mumbai ‘imitation jewelry’ is what the bride is wearing.
6.    Retail demand is crucial to price – not the ‘gold funds’ or sovereign funds. So if there is a slowdown, prices will come down.
7.    At least one jeweler in Kerala told me “if one bangle translates to a vacation in a foreign location, people are taking the vacation!”.
8.    A slow down in the Gulf means many ‘Keralites’ are coming back to India from the UAE – their bread will come from selling gold. Finding a job in Kerala when 1 Million unemployed people are looking for jobs will not be as easy as selling gold.

9. If all business channel ‘experts’ are recommending you to buy gold, there are ads asking you to buy gold, if there are e-mails telling you how ‘gold’ has ‘outperformed’ equity in the past 12 months, it is normally a great time to be selling gold.

Even if you do not believe a word of what I say, start thinking! Amen.