Gold Bubble – The Next Bubble

After Real Estate (Housing), Stock & Dot Com Bubble burst, The Next bubble is the Gold Bubble. In year 2000, the world economy passed through the Dot Com Bubble burst and after that in year 2007-2008, there was a great Housing & Stock Market Bubble burst.

So it seems that, our economy is born to have bubbles. And this time the next bubble is the Gold Bubble. I know that my statement might be painful to you. But it is true. After the year 2000, The prices of Gold has been almost tripled.

Now let me tell you the brief history of Gold. Gold is the traditional and ancient class. Gold is as old as the history of the mankind. And since the history of mankind, ever mined gold can be put in 64 by 64 by 64 feet of cubicle.

The main limitation of Gold is that, it has no Utility. and on the top of that its heavy. Only 1 foot by 1 foot of Gold cubicle will be of 1 tonne, a weight of Maruti 800 and its cost will be around Rs.85 Crore. Previously the gold was money because our currency & US Dollar was backed by Gold. But after, 1992, the president Nixon of USA had removed “the Gold Standard” and the dollar became free float currency. So after 1971, the gold became separated from currency.

Now in the modern world, this yellow metal has no utility accept in labs and in some gadgets. And on the top of this world’s highest Gold consumer country is India. India owns 8000 tonnes of Gold and out of which more than 95% is in public hand while US Government has just 300 tonnes of Gold only.

But surprisingly because of the current gold bubble, Indian Consumer demand for gold has been drastically decreased. In February-March 2009, there was virtually no Gold Import in India. Indians love this precious metal since thousands of years but they are not that much fool that they pay more than triple price for this yellow metal than its actual value.

So Demand for Gold will decrease sharply in the near future and this will bring down the speculator activity in this precious metal. And thus the Gold Bubble has to burst.

Gold can not give you 30-50% return for long time horizon. Gold is not the asset class for Capital Gains. Of course, Gold provides stability to your portfolio and protects your wealth from inflation very well but for Capital Gains, the number one Asset class is Equity.

There are several investors around this world who have shifted their wealth from Equity to Gold in recent years by seeing staggering growth in this Asset class. But this will not help them in achieving their Financial Goals because the Gold can’t sustain this much high level for years.

So ultimately, The Gold Bubble has to Burst…!!!