17 December 2010

Nifty : Golden Comparison

Everyone of us know that money can be printed at a much faster rate than can Gold be pumped into the system and here comes the importance of Gold. Warren Buffett made a mockery of Gold as an investment as it has no industrial use and do not create any value. There are "smartys" on the other side of the table as well, like Jim Rogers who cannot get enough of gold. Whoever is right here, but in times of hyperinflation one knows what Gold's real worth is! There no doubt, is a considerable unanimity that Gold is the real currency.

Keeping that in mind many chartists, show chart of S&P 500 in terms of Gold, and if you look at the chart below, you can see what enormous damage has been done to the Index in 3 years.

I would like to show the same thing except that it will be Nifty in terms of Gold priced in dollar.

Though we have just missed crossing an all time high by few points, check how we do when we compare it with Gold. Earlier high was 7.25 in early 2008,  we managed to get to a high of just over 5 and that too in September 2009 and since then we have moved sideways to lower. When Nifty was over 6300 in November this chart was at 4.5, which means still almost 35% lower!

So actually Nifty in real terms even after this big rally back to old highs have gained only apparent value! We feel we are "richer" or back to how "rich" we were! But actually investors have lost real value. Now as per one of my earlier post, I recall Rupee was around 39 per dollar in Jan 2008 and in Nov 2010 it was around 44 to a dollar. Which again means that Rupee has weakened around 12.5% against the dollar during the period Jan 2008 to Nov 2010. Now doesn't it mean that real value for Indian investors of Nifty in terms of Gold is even lower. It roughly comes to around 40%!

So do the math and realize that we are nowhere near the highs, we are just feeling good about it!


Sriganeshh said...


good post...would like to repost same in my blog

thanks and best

Tarique Anwar said...

sure go ahead, just check for my correct name ;)

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