Commodity Online
Gold was the ‘king’ of commodities in 2008 if you are not very particular about gender bias or it was queen of commodities if you are a feminist.

Whatever may be the gender, gold was the only commodity that investors put trust on at a time when trust was almost at its ebb.

India is the largest consumer of gold but in the last month of 2008, but even its gold imports got a beating, albeit temporarily.

Gold imports recorded a fall as high as 81 per cent partly because of price and partly because of poor demand.

Imports stood at mere three tonnes in December 2008, against 16 tonnes during the same month in 2007, as per the data of Bombay Bullion Association.

Gold prices have taken a beating of late, in line with fall in asset prices globally. The excesses build upon in the last few years across the world have led to severe repercussions for financial markets and the global economy in general.

The firefighting action has begun with the central bankers providing the necessary monetary stimulus.

The result of all this should hopefully lead us to a successful road ahead culminating to a massive inflation globally as the liquidity injection measures prove to be successful. The yellow metal that is a known hedge against inflation should likewise rally.

However if the global economy continues to bleed for more time duration, Gold should still outperform the other asset classes. Gold is a substitute for paper money and like cash itself, it gains in value as asset values drop. In other words one would be able to exchange more real estate for Gold if the global turmoil continues as the Gold prices would have risen vis-à-vis real estate prices.

Additionally, this also means that the deflation in US would continue that would fuel in a further rise in USD against all other currencies including INR. Hence Gold in rupee terms would continue to remain firm, with the weakness in international Gold in dollar terms offset by the strength seen in USD versus the INR.

A case in point has been that rupee denominated Gold has actually outperformed all other asset classes in India since Jan 2008 mainly on account of currency depreciation.

Returns in 2008 (Jan- Nov)
Asset Class Returns
MCX Gold (Rs.)               -19.62%
Spot Gold ($)                  -7.74%
BSE Sensex                   -56.46%
NYMEX Crude Oil ($)      -49.28%
Source: RCL analytics

With inputs from the research desk of Religare Commodities Limited

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