Many a times I have been asked whether gold is a good investment option. Similar questions are asked about real estate (empty land or built up area).
My response has been both yes and no.
Yes – as long as I am able to make a profit on an investment made in these items, they are an investment class. But so is any other commodity like Crude Oil, Silver, Steel, Rubber, Pepper.
No – as by and large, these commodities have no intrinsic value. These commodities are never sold at a cost price + proft margin. Their value is determined by the dynamics of demand (need to buy) to supply (need to sell).
In case of companies, there’s always a book value of the company, which is the fair value of the company per share. In commodities, there’s no fair value.
Investment in real estate, atleast in India, is fraught with risks many of us are oblivious about. As transaction value is large and so is the inherent risks, the reward (if all goes well) is also pretty high.
Also, if my neighbour’s property was sold at X, does not mean I will get X as a minimum. My property will valued when your ‘need to sell’ meets someone else’s ‘need to buy’. If I am in a crisis and my ‘need to sell’ is high, then Ill get a price lower than X.
Next Edition: Gold – Is it Worth to Buy Now?
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