Gold To Preserve Wealth
April 5, 2012 1 Comment
Gold is generally believed to be a hedge against inflation.However there has been a spate of articles disputing this belief.I found this nice article here that analysis the relevant data for India
. The graphs and table below are extracts from this post.
The graph below shows the movement in WPI and average prices of 10 gms gold in Mumbai from 1970-71 to 2008-09.
The graph below shows how the annual changes in gold price compares with annual inflation and the years in which gold has beaten inflation:
The table below shows how the average return of gold has beaten average inflation over long terms but in certain blocks of years performance of gold has been very poor and it has failed to give any real returns:
BTW it is interesting to note how inclusion of one good year (1991) dramatically changes the average.
Gold has thus been a pretty good hedge against inflation and a preserver of wealth in India.Its price might decline a bit in the short term.It might not budge for a few years,but will make up for it by some fast run ups of price.So the traditional idea of converting a part of one’s income to physical gold routinely and waiting looks like a good idea.