Instead of liquidating assets and moving money to Gold, investors have instead moved most of their money into the US Dollar. Many investors see this as a prudent move since the US economy shows signs of recovery and it is highly likely that a global recovery will be led by the United States. Given the low confidence in the global economy Gold demand has also been low, especially in India and China where fears of slowing growth persist. The strength of the US Dollar against currencies such as Euro and INR has also contributed to lower demand.

While Gold may be an attractive investment option, we need to keep in mind that Gold has historically been seen as a hedge against inflation rather than an investment option. Empirical evidence also suggests that the purchasing power of an ounce of gold is the same now as it was a hundred years ago, whereas the purchasing power of currency almost always declines. What the recent fall in Gold prices demonstrates is that there is no sure way of predicting the price of gold based on the movements of other markets or currencies.  Given the unstable nature of the world markets at present, Gold is not the safe haven it was even a year back.

Note: The blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.