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The price of gold hit a record high on Tuesday, with analysts giving a number of reasons for its rise.
Gold generates no income. It costs to store and secure and insure. Yet the flight to gold continues. Gold only beats inflation. It fares poorly when compared to real estate or shares when compared on the basis of real inflation adjusted returns. Gold scores the highest in terms of liquidity, compared to all other investments. Gold can be converted to cash at any time. All gold investments have the same tax concern. Gold, being a commodity, is taxed as ordinary income even if profit comes from buying a gold ETF. Between the costs of storage, premiums paid and taxes, returns from an investment in physical gold can be eroded quickly unless compensated by the gold price.
Gold price can be very volatile. Over the past three years, gold has seen an increase of 84% in value but has seen gains and losses of over 12% within the same quarter.
Indian households are estimated to hold over 16,000 tons of gold primarily as jewellery.
The BBC reports:
The price of gold hit a record high on Tuesday, with analysts giving a number of reasons for its rise. Both the price of the actual metal and the price for buying it at a future date rose more than 2% to $1,274.75 an ounce. It was the biggest one-day gain for the commodity in four months.
One of the factors spurring investors is gold’s traditional role as a so-called “safe-haven” investment at times of economic uncertainty. On the physical market, demand for both bullion and jewellery has risen ahead of the seasonal Indian wedding period and the Hindu religious festivals that begin in September.
Another driver is more technical – gold is priced in dollars, and any fall in the dollar makes it cheaper to buyers using other currencies. The dollar has fallen across a range of currencies, driven down by a range of factors. Its most remarked upon slide has been against the Japanese yen. It is trading at a 15-year low against that currency. The price of gold has risen 16% so far this year. The World Gold Council’s last report on the gold market predicted that continuing strong demand from jewellery buyers in the two fast-developing markets of India and China, would help keep the price high.
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