>THE GOLD REPORT (IIFL)

“It gets dug out in Africa or some place. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from
Mars would be scratching their head.”

~ Warren Buffett

No other object is like gold—perfectly useless yet universally treasured for millenniums. A controversy in itself, gold has always been an amazing magnet for contentious debates and opposing views. The abolishment of the gold standard stripped gold of its official monetary role, but inadvertently made it the unoffi cial “money of last resort”. Gold thrives on fears and suspicions of government’s fi at power, reasons for the heightened interest of late in the precious metal. This report delineates the perils and promises of investing in gold and presents a fundamental mechanism (with future scenarios) of gold price movement in this truly interesting time of ours.

The perils of investing in gold
The great peril would be mistaking gold for what it is not: an investment asset, an inflation hedge or a “safe haven”. Gold carries no economic returns and has underperformed equities for most of the time since it has had a price; in the short to mid term, gold price does not even move in tandem direction with consumer prices; and it only becomes a “safe heaven” when (the purchasing power of) money is in jeopardy.

The promises of gold
Yet gold is the market’s best and only credible alternative should fiat currency fail. For a rational investor, gold resembles a market priced, public-traded and non-expiring insurance against the extreme event of hyperinflation. Gold speculators, on the other hand, can trade on and profit from changes in outlook of inflation risks and market sentiment. Gold’s diversification benefits also emerge during times of crisis: a 4-8% allocation of gold might be suitable for a mid-risk portfolio.

Gold from now on
That would hinge on the outcome of the US recovery efforts and the ability and will of the Federal Reserve to mop up excess money supply to keep inflation at bay. Here we present four (in fact, five) scenarios: gold would sink to US$500/oz or lower in case of a Japanese-style deflation or if the Fed achieves recovery while pre-empting inflation with surgical precision; on the other hand, gold would shoot up towards US$2,000/oz if inflation reaches doubledigit levels as the Fed hesitates between choosing to kill inflation or a nascent recovery. A black-swan scenario, however, would be one in which gold bugs have their dream come infl ation and a total meltdown of flat currency.

Following topics are discussed in this report:

• The nature of gold and gold price
• Gold: demand and supply
• Myths, rhetoric and facts
• Gold-plated countries
• Histories
• The Gold Rush
• Gold equities: leveraged gold play
• India and gold: A history of fascination
• IIFL Gold Survey
• Silver: Gold’s often forgotten cheaper cousin
• Platinum: the high-octane gold

To start full report: THE GOLD REPORT