Bullion: The white revolution

By: NS Ramnath/ Forbes India

Gold has shown all the signs of scaling new peaks, but still silver may outperform the yellow metal in 2011.

Gold is a foul-weather friend. In times of war, recession and political turmoil, it always goes up. Looking around us, we can see so many signs of instability right now. The threat of terrorism has increased all over, especially so in India. Western Europe is afflicted with a debt contagion. The Korean Peninsula is in the tinder box. All signs that the appeal of gold will remain strong in 2011.

Gold also likes abundant liquidity. It not only brings a lot of capital into the market for the yellow metal, but also stokes inflation across countries. That makes people put their money in gold as a safe haven. The money flood from the US is expected to be inflationary. Another sign that gold will continue to rise, never mind the five-year long boom it has already had.

In the market, everyone seems to be voting for gold with their wallets. JPMorgan Chase recently re-opened its gold vault in New York after 10 years as high net worth individuals sought vaults for their newly acquired stocks.

India, the largest repository of gold in the world, appeared as though it had lost its famed appetite for the metal for a while. But when the Reserve Bank of India bought 200 tonnes in November 2009, it encouraged the people to come back to the market and start buying again. In 2010, Indians put in more than Rs. 100,000 crore in gold.

In China, there is a newfound demand for gold.