Thursday, November 24, 2011

Gold Vs AUD Vs S&P 500...Investment Ideas

Gold has been a tremendous investment opportunity since 2001 and has lasted a decade. My view is that this opportunity will continue and will last for at least a few more years and perhaps another decade due to the decline of all major currencies.

Facts are:

Had you invested USD 1m in Gold in 2001
Price in 2001 was USD 278
Price today is USD 1,697
Gain of 510% in 10 years
Total value of USD 1m would have been USD 6,104,316

Current outlook as on date: Gold shall continue to rise and shall touch USD 2,500 levels within the next 12 months

Had you invested USD 1m in AUD in 2001
Price in 2001 was 0.5144
Price today is 0.9881
Gain of 92% in 10 years
Total value of USD 1m would have been USD 1,920,878

Current outlook as on date: AUD shall continue to rise due to commodity price growth as well as China's growth and should be bought at prices below 1.00 on a weekly average basis and on any sudden dips. Another strong factor is that AUD has the highest base interest rate in the world of 4.50% while USA/Japan/Switzerland are at zero and England is at 0.50% and Europe is at 1.25% and Canada at 1%.

Had you invested USD 1m in S&P 500, in 500 the world's top most companies listed in America in 2001
Price in 2001 was 1,123
Price today 1,192
A miserable gain of 6% which is close to zero!
So USD 1m in equities in some of the best companies in the world would have got you zero return in 10 years.

Current outlook as on date: Expect S&P500 to go down to 800-900 levels within one year from 1,192 levels today. And do not be surprised if it goes to below 700 levels.

Gold would not have earned any excess returns but the AUD investment would have earned anywhere from 3-6% p.a. as interest besides capital gains in addition to the 92% return mentioned above taking the return to almost 150-200% or higher.

Point I am trying to make here is that AUD and Gold are still amazing opportunities to invest into, in the coming days, in fact this week, on an average basis due to some correction in the AUD as well as gold prices, in the short run.

In the long run, both will continue to run up.

Meanwhile, we have all seen and heard that Govts are going bust, real estate values are declining worldwide, global banks are in big trouble etc etc.

Please view the attached chart and observe that US equities gave close to zero return over a 10 year period and are expected to decline in the coming one year while AUD and Gold have continued to rise for almost a decade and have multi year highs, partly because both have high demand and both are anti-USD investments and China has a important role in both. In Australia, China is the largest importer while for gold, China has large reserves but has become a large buyer and is beating India in tons of gold purchased.

All in all, AUD and Gold are safe investments when entered at the right time to invest, in the short term, given current uncertain market climate but in the long term, it could be anytime.

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