These days everyone says buy gold or better buy gold based mutual funds. But is it actually what they claim it to be?
First of all why gold and not any other metal. This is only because gold is the most sought after metal and was used as monetary exchange. Though we only look at gold being used as Jewellery, it is also used in Industry like Electronics. In the international market gold is priced in Troy ounce, which is equivalent to 480 grams.
Gold prices have kept fluctuating from time to time from a low of $252 in 1999 to a high of $850 in 1980. The 1980 high was never overtaken till 2008. From 1999 to 2008 the price has gone up almost 4 times i.e. 400%. The major reason for the rise in gold prices is said to be because of increase in money supply in the market, inflation and high fiscal deficit of US.
But like all investments the price of gold also depends on demand and supply. But unlike other investments the biggest problem with gold is hoarding. Since there is always a steady demand for gold, but because of hoarding the supply gets limited and this raises the price.
Major part of gold mined goes into production and only around 15 to 20 % goes in Jewelley and Exchange traded funds.
As per the world gold council, the annual production of gold is around 2500 tonnes whereas the demand is around 3500 tonnes making the demand over supply to be around 1000 tonnes.
When it comes to investing in gold, it is always compared to stocks. The major difference between buying gold directly and stocks is holding cost of gold. You have to store gold and sell to get returns, but in case of stocks other than selling, you also get dividends. Gold will always have a demand, but the demand of a stock keeps fluctuating depending on a number of circumstances.
So the risk factor is low in case of gold. The only other risk in case of gold is holding risk. In that case ETF become a better option.
Friday, September 12, 2008
Tuesday, September 9, 2008
Technical Analysis
Somebody asked me what Technical Analysis is. Actually I had learnt it a long time back, and frankly do not remember any definitions. I can look at a chart and tell, OK it is about time to buy or sell. But even that I am not sure if it’s right. So actually I look at the chart and still follow my gut feel.
This article on Technical Analysis I picked from the net just gives an overview of what it means.
Technical analysis is a technique that claims the ability to forecast the future direction of stock prices through the study of past market data, primarily price and volume. Technical analysis considers only the actual price behavior of the stock, on the assumption that price reflects all relevant factors before an investor becomes aware of them through other channels.
In simple terms Technical analysts believe that the historical performance of stocks and markets are indications of future performance. A fundamental analyst would study the fundamentals of each stock and then decide whether to buy it or not. By contrast, a technical analyst would sit in his office and make a list of trades on the stock. Disregarding the intrinsic value of the stock, his or her decision would be based on the patterns or activity of people doing trade.
In reality even the analyst won’t know what would happen, he too is just speculating. For that matter all of us are. That is why we have a stock market. Everyone wants to make money and nobody wants to fail. So we rely on analysts. That is how everyone makes money.
So it’s up to you to decide if you want to believe someone or some sort of analyst. It’s your money. We are very busy people, who do not have time to study stocks. There are lots of people who do study of stocks and these guys are employed by Magazines, newspapers, TV channels, Stock brokers, Mutual funds, etc.
We read their articles, listen to the radio or listen to our friends and relatives, and reach a decision on what to buy or sell. But remember one thing, whatever anyone says follow your instincts. Ultimately it’s your money. Technical Analysis is good, it gives you a fair indication, but this indication is just based on past data.
So we should always combine this data with other analysis, data or information.
This article on Technical Analysis I picked from the net just gives an overview of what it means.
Technical analysis is a technique that claims the ability to forecast the future direction of stock prices through the study of past market data, primarily price and volume. Technical analysis considers only the actual price behavior of the stock, on the assumption that price reflects all relevant factors before an investor becomes aware of them through other channels.
In simple terms Technical analysts believe that the historical performance of stocks and markets are indications of future performance. A fundamental analyst would study the fundamentals of each stock and then decide whether to buy it or not. By contrast, a technical analyst would sit in his office and make a list of trades on the stock. Disregarding the intrinsic value of the stock, his or her decision would be based on the patterns or activity of people doing trade.
In reality even the analyst won’t know what would happen, he too is just speculating. For that matter all of us are. That is why we have a stock market. Everyone wants to make money and nobody wants to fail. So we rely on analysts. That is how everyone makes money.
So it’s up to you to decide if you want to believe someone or some sort of analyst. It’s your money. We are very busy people, who do not have time to study stocks. There are lots of people who do study of stocks and these guys are employed by Magazines, newspapers, TV channels, Stock brokers, Mutual funds, etc.
We read their articles, listen to the radio or listen to our friends and relatives, and reach a decision on what to buy or sell. But remember one thing, whatever anyone says follow your instincts. Ultimately it’s your money. Technical Analysis is good, it gives you a fair indication, but this indication is just based on past data.
So we should always combine this data with other analysis, data or information.
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