Did you guys read my post about diamonds in this thread? Now let us talk about
gold.
Gold is our largest import compared to other countries, except maybe China. Only a very small, almost negligible, amount of it is actually used in industries. Rest of it goes into retail for people like us to buy. Gold is a valuable an safe investment. No doubt about it. But if you are going to buy gold today for better returns tomorrow, you are in trouble. First of all, we Indians don't sell gold until it is necessary. Often, it is our last option. That makes it a dead investment as it has no liquidity. As for returns, there is no indication that gold prices are going to rise any higher.
Let me tell you why gold prices got high in first place. We all know global economy was in a bad state between 2007-2009. Markets all around the world were on a downward slope. In that time investors invested in one thing that guaranteed return on their investment, gold. This led to rise in gold prices all around the world. Sometime later, the markets recovered and investors took their investment out of gold and back into economy. The gold prices came down.
Yes, they didn't go higher. They came down. All around the world. Except in India.
Take a look.
At almost the same time, our gold import also increased.
Source:
http://www.equitymaster.com/5minWra...story=1&title=How-much-gold-does-India-import
Now, when we import something, we have to convert our currency in USD and vice-versa for exports. This exchange determines our currency rate. In a oversimplified term, more imports means rise in price of USD.
As the chart shows, the spike in import caused by gold frenzy meant our exchange rate declined fast and we had to pay more for import of necessary commodities such as crude oil. This led to hike in prices of petrol, diesel, gas and subsequently everything.
In other words we, Indian citizens, are also reason why inflation grew rapidly in past 5 or so years.
Now even though gold prices are on lower level, USD is on higher level. This is why gold prices have remained on higher level.
However, there is nothing which says they will go higher or remain so for longer period.
So yeah, don't listen to people who are saying investment in gold is better. It isn't.