Be a Goal Digger, Not a Gold Digger

by Pawan Manghnani on November 5th, 2013

Since the beginning of human history, gold had always functioned either as money or as a store of wealth. Many holders of gold store it in form of bullion coins or bars as a hedge aka safe haven against inflation or other economic disruptions.

Indians have a centuries old traditional and emotional connection with gold. Making them the biggest investors in the precious metal for decades now, Pumping in billions of dollars into the commodity. In fact, on Dhanteras which is the first day of a 5 day Diwali festival celebrated in India, Indians flock to buy gold by the shiploads as it is considered auspicious to please Lakshmi - the Goddess of wealth.

Plus most Indians also know the prices even if they don't invest in it, that is the level of obsession we as a country have towards gold.

But does all the fascination and hype really make any investment sense ? 

Seven great quotes from Warren Buffet on GOLD as an Asset Class describes my point wonderfully well:

1. “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, 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.”

2. “The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn’t going to do anything for you….it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time.”

3. “Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything."

4. “I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils (XOM) and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.”

5. “The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.”

6. “What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As 'bandwagon' investors join any party, they create their own truth — for a while."

7. “I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola (KO) will be making money, and I think Wells Fargo (WFC) will be making a lot of money and there will be a lot — and it’s a lot — it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that."

Harshly but beautifully put by one of the richest men on Earth.

To conclude, if you are to buy gold as an investment, do make sure you know the right reason for doing so but buy from a position of financial strength and a good holding capacity.

But as renowned British economist, John Maynard Keynes rightly said:
"The market can remain irrational longer than you remain solvent."


Posted in not categorized    Tagged with gold, investment, asset, asset class, rece, recession, depression, bullions, gold coins, gold bullions, metals, precious metals


6 Comments

jazzy - November 5th, 2013 at 7:55 AM
love it!!!
Isha - November 20th, 2013 at 1:13 AM
Interesting read mate
Mohnish - November 20th, 2013 at 7:53 AM
Very Very Very well put together....
Wow... Gr8 work Pawan...
Pawan Manghnani - November 21st, 2013 at 12:45 AM
Thanks Mohnish. Appreciate it
roger m - November 21st, 2013 at 12:44 AM
awesome article & title !
Pawan Manghnani - November 21st, 2013 at 12:46 AM
Thanks Roger & everyone else :)

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