9/15/2006

Should you buy Gold stocks

A reader has asked whether I think the Gold stocks are a good buy here.

I have little experience in Gold stocks. I am willing to buy anything as long as it meets my EPS/sales or momentum criteria. Currently I do not see those stocks on my scan. I have no great fascination for Gold stock.

One thing I understand well is how to buy Gold. Every Indian is expert in this. I think the worlds largest buyers of Gold are Indians. No wedding in India is complete without large quantity of Gold being bought. Every major festival, every major event like birth of child is an excuse to buy gold. You will be astonished at the amount of Gold people in India have. They may be wearing torn clothes and have very simple house and lifestyle but may be having kilos of Gold at home. Go in to a small town and you will find at least couple of goldsmith shops.Rich or poor everyone has fascination for gold.

There are many housewives in India who buy Gold every month by forming kitty clubs called bhishi. So everyone will contribute every month say Rs 500 to 1000 and then one person will pick up the kitty and buy Gold next month next person will get the kitty. Some people buy just 2 grams or 3 grams per month. So when it comes to Gold they follow dollar cost averaging. It is a lifelong passion and everyone is an expert at buying it.

When I started my advertising career post my MBA, one of the clients I handled was Mehra Di-hatti one of the largest and the oldest jewellery shop in Delhi . I spent many days watching people buy gold in that shop. Everyday I used to be astonished by the amount of Gold people bought.

6 comments:

Unknown said...

That's interesting? Do they ever sell or trade gold when prices are high?

Pradeep Bonde said...

Given a choice no one wants to sell gold. It gets passed on from generation to generation.

In most Indian wedding dowry from the bride side is very common. Gold is essential part of the dowry along with cash and other items. So the moment a daughter is born parents start accumulating gold still she gets married.

Sometime it is used to buy some other big item like house.
The price rarely affects the decision to sell. Most people do not know the exact price at which they have bought as it is bought over a period of time. I don't know the buy price of gold which I hold.

Irrespective of price if there is wedding or a birth in the household gold is bought. You can not avoid it. Many times old gold in family is recycled on these occasions.

Gold is also bought by corporates during festival time to give as gift to govt officers. When you have to bribe very senior officer, gold is better than carrying lots of cash. So corporates buy gold coins and gift them.

In extreme emergency it is used as collateral . There is a huge network of formal and infrmal money lenders who accept gold as collateral.

The tendency is to buy and not sell. Unless an emergency strikes.

AJ said...

Hi EasyGuru,
You have a fantastic blog here, I visit it everyday for advice and information.
Was wondering what you think about steel stocks. Especially NUE, I was wondering if it might be a good short candidate here.
Thanks,
AJ.

Pradeep Bonde said...

Thanks.

I do not think it is a good short. If you go through my posts last week, I am expecting a bounce in steel. At worst steel might spend lots of months in a range.

I still see lot of steel stocks in my momentum universe.I do not believe shorting might be the best trading option at current juncture in market.

Do not trade based on my opinion. I am many times wrong on my calls.

amit said...

MBA, DELHI ? Which univ/What batch if I may ask ?

Pradeep Bonde said...

Worked in Delhi. I did my MBA at JBIMS in Bombay.