Tuesday, November 22, 2011

The Commodity Age

Let's talk about commodities. The telecommunications and technology rally ended with the dot com crises in 2000. The financial and banking sector came to a halt in 2008. Currently this is the age of Commodities.

You will notice that the commodity price trends have been increasing over the years. There were some dips but overall the trend has shown constant growth. A lot of hedge fund managers invest in commodities to hedge their investments. It provides them a safe passage if an investment went bad. This technique has been successful. Let’s not get into the working of how a hedge fund works. You can find many articles on the internet.

As the crises unfolded there was a huge need to balance the economy. China’s number one consumer is the US. Obviously China’s concern is the possible erosion of its trillion dollars reserves. To offset the effect of erosion China has opted to restructure US dept obligations to give support to the economy. It then took another dynamic step which increased the Gold prices. According to World Gold Council’s statistics publication; China had increased its gold reserve from 600 tonnes to 1054.1 tonnes which was an increase of more than 75% in the 2nd Quarter of 2009.

When reviewing that publication I saw some interesting facts. Right after China’s decision of increasing its Gold reserves, India had also decided to do the same by increasing its reserve from 357.7 tonnes to 557.7 tonnes which was an increase of more that 55% in 4th Quarter 2009. In 2011 the major buying was done by Korea where it increased its reserves by 14.4 tonnes to 39.4 tonnes which was in increase of 173%.

Why does a country accumulate Gold reserves? In the earlier times currency value was determined by the country’s gold reserve. Now it’s determined by the Economy and Monetary Policy. I would agree with you WHAT A SCAM!

Anyway, this was the reason for rising gold prices and more or less if you look at the gold price trend it has been increasing since 2000. I am including the Gold price trend from Reuters.

Analyst and Stock gurus are all placing their bets on Gold going to unchartered territory. They foresee a bullish trend for the long run.

Gold has always been a safe haven for investors.  The problem is it’s too expensive. As a saving habit I always give advice to my friends and colleagues invest small but do invest in this commodity. Another option is Silver. As they say very cloud has a silver lining. 

No comments: