There are many reasons to buy Gold and hold it. Of course tomorrow I can give you many reasons NOT to own gold also. One reason NOT to own gold is the recent phenomenon in its price. For example if you had invested in gold in 1980 (US $ 590) today it would be worth about US $ 1055! Not much if you consider inflation, is it? As against the sensex which has gone from 100 to about 17,100 (of course after touching 21000!). And the shares would have paid you nice dividends for holding the shares!

However the following are the reasons to own gold:

1. Global currencies are at an imbalance: US $ is not the only currency which is in bad shape. In fact currencies are today at quite an imbalance with each other. So if you do not know whether to hold your money in rupees, lira, yen, dollar, euro or pounds, choose gold. So clearly as much of cash you will keep in your portfolio is the amount of gold you should be having.

2. Investment demand for Gold is accelerating: yes too many people are touting this as a great hedge. And they prove this by doing a 3 year back testing. Fantastic. If you did a 10 year back testing, it will fail and fail badly. What is surprising is that bank relationship managers are now selling gold mutual funds – they will keep selling to keep their jobs. These mutual funds will keep buying gold…so it is a self fulfilling prophesy..

3. Ben Bernanke is converting all the forest in the US into currency! The Gold system having failed, most Central Bank heads are printing too much of currency. Thankfully they cannot create gold.

4. Huge supply and demand gap: India and China will continue to buy gold, as will many other users!

5. Interest rates are more likely to decline, than rise, internationally, adjusted to inflation.

Some day I will give you at least 5 convincing reasons not to buy gold.

Gold as a hedge in your portfolio works, but works over a very long period of time. If you buy gold because it has been going up it would be a wrong reason to buy. However, the fact is, it may still go up – but please stop expecting to get 36% CAGR, that will not happen, for sure.