Understanding India's Role in the Gold Bull Market

For investors observing the gold rate in India as well as gold's investment demand, it should come as no surprise that gold is the most sought after investment in India. This is due to several factors. This article will explain some of them.

From people young and old in India, gold has attracted investor's with it's inherent qualities of attractive color, durability and most importantly it's status symbol throughout India. Unlike in the U.S. in India gold is an accepted asset class and very rarely are people who own gold looked at as strange or contrarian. It's understandable though, given India's long history with gold that dates back as far as any culture.  Gold is simply a way of life in India.

Another interesting fact is that in India, more than 80% of the population owns gold, whereas in the United States and other countries that number is much lower. As I mentioned earlier, gold ownership is just a given in most Indian families. In America, people will think you're a bit off the wall if you mention that you own gold. To further explain, most Indian families purchase gold for special occaisions and family events like weddings. In India giving someone gold for their graduation or presenting a newlywed couple gold is like a rite of passage or a symbol of such. Also, gold is seen as money and given as a back up or insurance for tough times. In general gold symbolizes wealth in India. It is considered much more acceptable to own gold than a local currency or stocks and bonds.

Beacuse of their history, Indians view gold as an ever increasing investment that is both a safety net and a way to build wealth. This isn't to say that Indians will buy gold at any price. On the contrary, Indians are somewhat savy investors and very familiar with the gold buying season. Another interesting fact is that gold symbolozies the Hindu goddess of wealth and prosperity. Generations of Indian families typically pass down their gold from one generation to the next.  This helps explain the strong family bond that is noticable in most Indian families.

With gold prices reaching historical levels, the overall wealth in India is increasing as well. In some cases the rise in gold prices have helped many Indian families weather the financial crisis over the last few years. Most people aren't aware of India's long history with gold. However, when observing the gold market, India makes up a large portion of the investment demand and should be paid attention to.

Why You Should Still Invest In Gold

 Gold has been a steadily rising asset over the last 10 years. Whether you look at the price of gold per gram or gold per ounce, you see that contrary to popular belief, gold's rise has been slow and steady and not some parabolic move that happened just last year. This isn't to say that the market couldn't correct. Yet, if you're considering buying gold, you need to look at the facts to arrive at your own decision.

Given that, one of the questions many investors are asking at the moment s: Should I buy gold? And with the price of gold at all time highs, it's certainly a fair question to ponder. Before you start out try not to think of gold as a means to make a small fortune, I'd suggest considering that the main reason to obtain gold is for insurance from financial calamity.

The main reason to obtain gold is the fact gold maintains its value in times of financial disaster. These crisis' include political crisis, economic turmoil and the tendency of various Central Banks to print money in an attempt to "right the ship" following a credit expansion.

Whenever an economy accumulates excessive debt levels there are always bad investments in the economy. This was the case with the housing bubble that burst in 2007. Central banks typically get out there and help their member banks by way of a process called monetization, better known as printing money and now referred to as quantitative easing in order to stimulate the economy. Typically this ends up devaluing the currency and hurting consumers purchasing power. The result of this is often inflation and in extreme examples may even cause hyperinflation. .

We have recently experienced what can be referred to as the largest credit/debt boom in modern history. When the financing boom comes to an end as it clearly has, Central Banks have 2 options. They can allow the debt to deflate, or they seek to maintain the boom by lending to member banks at excessively low (near 0%) extremely low rates. Central Banks around the world have opted for the later scenario. However, most consumers are now attempting to repair their individual balance sheets and pay off debt, not acquire more.

In this post bubble environment it's imperative to remember that the central banks mandate is to preserve the livelihood of the banking system. This is why they have kept rates so low. However, this has had a negative impact on the value of the dollar. So, what can you do?

Owning gold helps insure or protect you against these scenarios: inflation (which causes rising food prices) and deflating bond prices. Unlike bonds, gold has no counter party risk to worry about. In other words, if you own a corporate bond, that company can go out of business. However gold is not going to default.

 One of the more common ways to approach gold as an investment is to simply allocate 5-10% of your overall portfolio to gold. Either way, take your time and conduct proper due diligence before investing in any investment, especially gold.

4 Reasons to Consider Investing in Gold and Silver

With all the buzz of gold and silver, especially those who were investing in silver the last few weeks, are you wondering yourself - why buy gold and silver?

There are many reasons why you should consider owning precious metals as part of your portfolio. Regardless if you are looking at buying gold or silver, you need to understand "Why" first. We will explore 4 such reasons.

Remember, there isn't any rush and you need to only allocate a percentage of your overall assets to any 1 asset class. Typically a rule of thumb is 10-15% gold and silver bullion for portfolio insurance (all of the time). Also, an investor could add to their allocation percentage to the degree they believe an economic meltdown/crisis is probable. Hence, during a financial crisis, the argument can me made for increasing one's gold and silver allocation accordingly.

Another point is that gold and silver should be seen as an store of value instead of a method to getting wealthy. There are plenty of analysts predicting gold likely to go way beyond historical levels (inflation adjusted) and I believe a number of those arguments are sound on their logic. But, bear in mind, the flip side means the outlook for unemployment and the economy is much worse. So, be careful what you wish for. Now, here are 4 reasons to own gold and silver.

1. Geopolitical Uncertainty and Global Unrest
Gold retains its value not only in times of financial uncertainty, however in times during geopolitical uncertainty. Also known as the crisis hedge, because investors move to gold for its relative safety when world tensions rise. During such times precious metals outperforms other investments. As an example, gold prices have been in a 10 year bull market an have posted some of their most impressive gains during the recent financial crisis.

2. A record of Holding Its Value During Monetary Expansion, Inflation
Unlike paper currency of many countries, gold has maintained its value through time. Investors view gold as a means to preserve their wealth from one generation to the next. As suggested earlier, try not to get trapped chasing the price as much as considering the preservation qualities of gold and silver. It is very likely gold and silver are going to be around for an additional century.

3. Deflation
So you thought gold only went up during times of inflation?  Deflation is often a period where debt and prices contract, business activity slows and also the economy is burdened by that excessive debt in the system. This causes what can be termed a credit contraction. The relative purchasing power of gold, compared to other assets, typically does well during deflation. . Often times, the economy will move from deflationary conditions to inflationary ones, depending on the central bank's behavior.

4. Increasing Investment Demand
Prosperity within the emerging market economies like Asia (China) means more investors to allocate a portion to precious metals. They simply have more capital to allocate. In many countries, buying gold and silver is a way of life. Take India for example. India is among the largest gold-consuming countries. The Indian wedding season in October is traditionally the time of the season that sees the highest global interest in gold. India has a history that goes beyond the U.S. That history includes gold as money. With gold at historical levels you could consider silver a more affordable alternative. Just remember that silver is more volatile.

Keep in mind that when you are considering why buy gold and silver, that the precious metals market is first and foremost a way to insure your portfolio. Beyond that, take the time to conduct thorough due diligence before allocating money to the precious metals market.