Last time, when the oil prices are such high was on 2013-2014. But why again the oil prices are high? Let’s break it down from the beginning. For the past few years we are seeing something rare in the oil industry, a boom in oil productions. This is due to large part of that The United States of America has find out a new way to extract oil from the earth. Due to this analyst started predicting that U.S will leave behind Saudi Arabia as the largest oil exporter by 2020. This also lead to several other major oil exporter increases their productions, The Organization of Petroleum Exporting Countries (OPEC) increase their production by 3 million barrels per day, mostly coming from Iran, Iraq & Saudi Arabia. This was all in the period (Nov 2104-2016). Suddenly Petrol & Diesel have became cheap in 2016. Things started to change when OPEC teamed up with Russia & agreed to reduce global supply of oil. Today hike in oil prices are due to political instability in the global markets. Like Venezuela slow economic collapse hit the oil productions in that country eventually effecting the global supply of oil. In 2104 Venezuela produce 2.5 billion barrels per day, since then it falls to less than 1.3 million barrels per day. Also, military clashes in Libya disrupted the oil productions drastically. The major reason behind this would be Donald J. Trump who withdraw the nuclear deal with Iran, also some of his policy changes to various countries lead to trade war. The Trump administration seems to very aggressive in these situations from the beginning which indirectly leads to such high oil prices. This means the oil producer will charge more from us. From the economic point of view, we have just entered the 10th year after the last recession happened in 2008. In general, these recessions happen when the oil prices have gone high. It also happened in 1981. What does it mean will there be another recession in the market? Well it’s very soon to comment.
You probably heard of this at some point of your life, that is “Old is Gold”. It’s true. But I would like to rephrase it in a different manner in context of investment that “Gold is old”. Yes it is! Gold as a investment has become very old these days. As an Indian we have to admit that we love Gold. In fact India is the one of the largest consumer of Gold. Earlier whenever we think of investment we buy gold. But things are changing now a days.
We have got access to various investment instrument like shares, bonds or deposits. Gold is a asset class which are not productive in nature like other assets like shares.
“A pile of gold will stay the same pile of gold as time passes”.
Yes! Buying gold is an excellent passive investment & every household should invest to protect themselves in bad times.
Investing in gold makes sense only for those who don’t have access or trust in the financial system or financial market. It is good for them.
But those who are financially sound person and have some bit of a knowledge about the financial market should always go for asset class which are productive in nature or investment. Buying gold for them should only remain as an asset which will protect their financial position in the market in bad times.
Lastly I would like to say, that if whatsoever you are buying gold,”Don’t go for physical gold”-Because there are drawbacks such as, storing cost in bank lockers, fear of being stolen and some part of depreciation at the time liquidating. There are various modern forms of gold which overcome the drawbacks of physical gold like “paper gold”.There are gold backed mutual funds, Gold ETF’s. However if you don’t mind locking money for 8 years, then Government of India issue gold bonds from time to time. These are tax free as well and you get an extra 2.5% interest p.a every year as a bonus.
Therefore I would like to conclude by saying, Invest in gold in a modern way through Gold bonds, Gold ETF’ or Gold mutual fund & try not to buy physical gold for investment purpose.