GOLD rises despite DEFLATION risk: GOLD investors beware

There are by now plenty of indications, even more plenty of blog posts giving plenty of reasons why the world is moving towards a deflation. In such a situation, would you still risk having gold in your portfolio? I, myself, have been sticking to a simple point - DO NOT INVEST IN GOLD in 2009 ! Never mind my own opinion, gold prices are now at Rs. 13,765 per gram - at a three month high. Read NDTV.

In the event of a confirmed deflation the price drop in gold can be quite catastrophic. One reason for this is that majority of the gold is being hoarded by people in the form of jewellery or other articles which are still capable of coming in the market. Thus in the event of panic news of the type "Gold prices are dropping and will drop further", we see a sudden demand destruction for gold and an oversupply. What would happen in such a scenario is anybody's guess.

Last week inflation in India rose from 5.4% to maybe 5.6%? I dont think such small rises should be confused with a trend.

If you are long on gold, - its a good idea to book profits regularly and respect a pre-determined stop loss. Good luck!

Jan 23, 2009

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