Why Investing in Gold May be a Bad Idea Today?

Gold prices have increased like never before and many people, particularly in India are withdrawing from other saving schemes and investing in gold. If you are one of them pouring money into gold, beware, gold prices may possibly fall down drastically.

You may argue on this point showing the gold price rise in the last few years. But it is not a logical investment going by the ‘strong uptrend’ in short term. Our conclusions are drawn from long term trends. Let us see the trends in gold price to understand it better. There were five crucial phases in gold history in last 36 years.

5 Phases of gold price history
1975 – 1978: Gold starts at $200, came down to $100 and raised to $250
In 1975, gold standard was removed and this contributed to the increased fluctuations in gold price. In 1976, gold price fell down to $100 per ounce and slowly rose up to $250 in 1978. In this phase, the gold price started rising from 1976.

1978 – 1980: Gold rose from $250 to $750
In Jan 1980, gold hit a record $750 per ounce. Initially in 1978-79, there was a slight increase in the price of gold, as a sudden in early 1980 i.e. on Jan 21, the price shot up like a bullet out of a gun.

1981-2000: Gold fell to around $300 from $750
It was observed that there has been a striking change in the behaviour of gold price since 1981. The price fell, first sharply, then gradually and reached around $300. The gold price has been oscillating between $300 and $450 from 1981 to 1997 (16 years). It reached over $500 only two times in the years 1982 and 1987. Moreover, between the years, 1997-2001, the gold price fell further and fluctuated between $250 and $300.

2000-2006: Reached $750 in 2006 after 26 years
In 2001, gold price was around $300 before making a consistent rise, taking 6 years (2006) to reach $750 and almost 26 years since 1980. People who purchased gold in around 1980 had to wait for 26 years to see its value grow back to the price which they purchased it. Consider this example, let us say someone got married in the year 1980 and was gifted 20 tolas of gold and 500 yards of land in any urban space in India. By 2006, at the time of his kid’s marriage, the value of the gold has not changed while the value of land has increased from 200/sq. yard to 15,000/sq. yard (a 75 times increase).

2007 – 2011: Sudden price rise to around $1900

Then gold price increased from $750 to $1900 between 2007 and 2011. And in 10 years, from 2001 to 2011, it grew from $300 to $1900 and growing. This can be observed as a big rise in the history of gold price.

A thorough look at the statistics reveals that gold prices are rising and may fall down significantly. Don’t get carried away by the recent past rises and buy gold aggressively. Gold has shown a recurring trend to rise rapidly in short term, then fall down from the peak and then stay stagnant for very long periods of time.

You may also like to read:
Gold Ornaments vs. Bullion – What to Choose While Investing
Time Value of Money – Money Making Money

2 comments on “Why Investing in Gold May be a Bad Idea Today?”

  1. Sudharshan says:

    Your advise was right on target! Today, 15th April 2012 – Gold prices are at 26,500. Surprisingly, people are rushing to shop – Fools rush in were Angels fear to walk. I am sure they will pay the price, the gold prices should fall more…

  2. According to my analysis, the returns that would be generated in gold over the next few years would be less than the interest earned on Fixed Deposits.

    So its better to invest in Fixed Deposit.