GOLD MYTHS BUSTED
Myth-1. Gold is totally safe
· Gold is not safe – government debt is.
· Gold only appears safe because it is compared to equities.
· The historical volatility of gold prices is around 20% compared to 40% for equities.
· That means there is 30% chance that gold prices will go up or down by more than 20% in a given year, which is not safe by any means.
Myth-2. Gold prices can be guessed from global economic trends
· It is partially true as they are affected by asset class-specific factors, particularly supply and demand, which is very difficult to understand.
Myth-3. Gold is a hedge against inflation
· That only holds in the very long-term, and cannot provide relief against short-term inflation.
Myth-4. Buying gold jewellery is an investment
· Jewellery and coins have personal and cultural worth, and store value.
· They do not provide either regular income or true liquidity.
· Jewellery re-sells at 15% discount, and it is better to invest in paper gold.
· These are cost-effective, tax-efficient, and liquid form of gold exposure.
Myth-5. Gold and equities move in opposite directions
· Gold is mildly negatively correlated to equities.
· That does not mean it does well in a market crisis.
· Invest in gold for the diversification value, and not by watching the stock market.