Mindless Gold Rush

 

Second time in this century world-wide mindless rush for Gold has been witnessed. First in 2008-2009 during financial crisis and the second still in progress during Corona pandemic. But this time it is speedier and in a very short time Gold prices reached a new level. Gold has been for centuries a dead investment product but psychologically very fulfilling as a possession to feel good. It does not have any sustainable growth potential but soothes the nerves as a hedge product during difficult times. So, it fit perfectly well during Corona outbreak to possess and feel the power of yellow metal. Gold and its associated generational feelings passed from generation to generation has maintained its glitter and genetic response to own it. It has no parallel and stand out as the most precious possession generation by generation. Older civilizations of India and Italy has much more fascination and crave for yellow metal and it is not only individual but family tradition and custom to own, buy and pass on to next generation. It is mostly a one-way process. Seldom it has been sold for basic needs.

But what is puzzling that the recent highs and lows in Gold is giving a picture of too much uncertainty and this uncertainty is fueling its north ward run. Gold is attracting funds from equity markets as well as from debt and mutual funds.

    Most of the savvy investors are parking their funds from equity and debt markets in to Gold for some time till the economy starts giving signs of recovery. Some doing it to diversify their portfolio and also hedging with some growth in near term. Normally during bull market Gold prices are low but first-time stock market is also over bullish and Gold also. It clearly shows that either of the one market is fully misplaced. Either Gold or Stock market? One is surely disconnected from reality. Which One?

    But one thing is sure that sooner the Gold has to lose its luster as investment destination and money will go back to equity to be part of growth story. Gold investment is a passive dead investment and it only satisfies the fear and greed. It has no role in growth. To change this situation and use the idle Gold investment in recent years many governments have started digital gold, Gold bank, Gold Custodian etc, as new avenue for Gold investment to deter from physical possession  and also gold bonds to provide some interest on Gold investment. It is actually to convince Gold investors to start owning Gold in digital form and support the economy and growth in whatever the smaller way. This is showing some results and now new generation of young and savvy investors have started owning Gold in new innovative instruments. And this may be one of the potential causes of too much volatility and price rise in Gold. It may also be the beginning of Gold as a regular trading product for millions of investors. A new apparatus to park funds during uncertain times and exit when things become normal.

    But till when? What should be the time period, next six months or one year or may be longer? Nobody knows it. It was much easier to forecast such time period during 2008 financial crisis but very difficult during this pandemic. This pandemic is such where no one knows exactly what is going to happen in short, medium or long term. When it is going to be controlled?and what would be the new normal  that will also define new Gold normal ?

    Everybody is guessing from medical, research fraternity, media, people at large  to political bosses no one is sure about the end of Corona. The World it seems first time entered  complete territory of unknowns. The fear of unknown has gripped this World and precisely this fear is fueling the mindless Gold rush.

    Investors are piling up on Gold either in digital form, physical from commodity markets/local jewelers/banks, specific mutual fund investing in Gold and Gold ETF schemes, bonds etc worldwide. Billions of rupees are going in to Gold and taking Gold prices every week to new high. It crosses 2000 USD per ounce last week in international market  and still having some more steam left. Nobody knows what would be the next level. A mindless investment in to Gold.

    I don’t see this is going to change in near future and may continue for longer time similar to disconnect of bullish stock market with the economy.The fear is driving people to buy Gold in a way that next 3-4 years would be Gold run. The frenzy will grow more after the news of Buffet investing in Gold mining company. Now the supply and demand side are also looked in to and this gives me a sense that for quite some time this is going to enhance fund flow to Gold. I may be completely wrong.

    Then question comes to mind, what would be the next level, 2000 USD looked so distant till it has been breached and now in a year or two if the uncertainty and unknowns are not defined clearly then Gold may touch 2500 USD or more.

    However, exit for Gold rush would be also very fast in case the economy starts looking up. So, investors need to be more watchful and attentive for their precise entry and exit from Gold. Otherwise they may fall in to the Gold trap.