I wrote a recent article in June 2019, titled “Gold: Ignored & Undervalued”. Around that time, Gold was valued at Rs 34k per 10 Grams. But, as of today, it has touched Rs 40,190/- per 10 grams. Investors have taken notice of sudden price movement and it is no longer ignored ! But can we say that it is undervalued even now ?
According to Peter Grandich, who is a very successful Wallstreet investor & advisor, “If it is a nine innings game, we are in the second inning of this Gold bull market. Right now it is at USD 1500 per ounce. Still, it is nearly 20% cheaper from its all time high. Whether it will go to USD 2000, or USD 5000…only time will tell.”
Central banks are one of the biggest buyers of gold. Indian news website www.livemint.com published on Aug 27, 2019 that there is a gold buying spree amongst the central bank of the world(Read the article). Central banks around the world are concerned about unstable global economic situation, and excess leverage.
A year back, investors were generally bearish on gold outlook. But, now, they are sitting up and taking notice. Worsening health of global economy is perhaps the main reason. Equity markets are languishing. Europe is already in recession. BRIC economies are also going through a prolonged slowdown. USA has entered its worst Political, Social and Economic phase in decades. Unemployment numbers are looking less promising than before. Consumer confidence is declining. Public Debt is now more than 2X of Lehman debacle. The current political leaders are busy in only making noises rather than improving things at round. Therefore, it is a matter of time, investors’ confidence in paper currencies will be shaken.
Biggest proof that investors now have less faith in paper money is widely available negative interest rate bonds. For the first time ever, 30% of global bonds are trading in negative interest zone. What it simply implies is that there is not sufficient demand for capital. It also means that a lender will lose money on the very first day of the contract, as he will eventually get less money than what he lent. So, why would anyone lend. Under normal circumstances, a loan given increases the net worth of the lender as it creates future assets. But in in case of negative interest rates, it is actually reducing the net worth. In such a scenario where there is no demand for capital, why should equity markets do any better. Entrepreneurs fear that any additional capital deployed will not earn a positive ROI which sufficient enough to pay interest costs. Japan is a classic case. The country is going through recession for last 30 years. Conventional economic theories fail to address such situation. Central banks also become helpless since no monetary policy will help in stimulating demand in such situation.
Global investment experts are advising investors to take exposure in gold. I am providing links to 5 best interviews on why investors should look at gold.