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Oh my GOLD
GOLD gets dug out of the ground in Africa. Then we melt it, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” – Warren Buffett
IT’S BEEN THE asset that has held its own in recent times. Save real estate, it has actually beaten every
other investment hands down. Yet, who would have ever thought that it would do that. Yes, we are talking about gold, the mesmeric yellow metal.  

Circa 2002, when gold price was inching towards Rs 5000 levels, a colleague of mine breathlessly predicted that gold would touch Rs. 7000 in two years. 

I fancy myself as an intellectual and cannot see life beyond the prism of the stock market. So, I asked,“How?” He responded by saying, “I don’t know ‘how’ but I know it will”. Then for good measure he added, “It’s in its 28 year peak.” 

I responded, tongue firmly in cheek, “Oh it has taken 28 years to reach this level? Why get excited?” He just smiled. 

He invested in gold. I continued to play stock. He is now laughing his way to the bank. And I am writing cover stories. 

Welcome then to the world of gold, the unexpected prima donna of the last decade. It would be instructive to understand the history of the yellow metal, its date with destiny and the reasons as to why it has such a tantalising hold over people, in particular over Indians.  

It would be good to know where the demand comes from, how much is the supply and whether gold would continue its relentless march skywards. Most importantly, we also need to address the question as to whether it is good for us that gold prices go up.  

Let’s explore some ideas and explode some myths.

Golden Idea 1: Why do we date gold

India is no South Africa; we are not awash with gold mines. Yet, Indians love gold and Indians have accumulated gold. By last count this nation held 18,000 tons of gold; that, when our annual production is a piddling 2.2 tons. Yes, we are holding stock that is the equivalent of 8000 years of production. So how did it happen? Read on to some historical nuggets for insight.  

• India was a net exporter of goods for a good part of the last 2000 years. This richness enabled India to import gold.
• In those halcyon days of kings and kingdoms, a gold coin issued by one king was accepted as legal
tender by other kings as well. So gold became an important store of value.
• In times of war you could hide and carry gold with ease. So, citizens were safe from the marauding
armies. Also, in times of crisis gold could be mortgaged.
• The inheritance laws in the Mughal period favoured gold accumulation. Under the law, on a person’s
death, the estate would pass to the legal heir only at the discretion of the State. Little wonder, people
chose to hide their wealth. And there wasn’t a better route than gold.
• In Hindu weddings, gold jewellery is a major component of gifts given to the woman.

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