GOLD AND INFLATION

WHY YOU SHOULD INVEST IN GOLD?

Raghu.G, GM,
Manappuram Jewellery
21.07.2022
 You may think Gold in not necessary in your life
, but the truth is something different
Take the case of Sri Lanka, as per the July 2022
vis a vis January Data
January 2022 July 2022 REMARKS
Petrol/Ltr 190 530 IMPACT
Rice 87 430 OF
Milk Powder (400 790 2535 INFLATION
gm)
GOLD PRICE / gram 11400 22500

Those who had Gold are the King, and will act as hedge/shield against Inflation

Indians have habit of savings in gold, this is one of the reason , even a Middle and
Low income family is not affected with inflation in India. During Inflation, your
money in savings bank account /Fixed Deposit will not be enough to meet the cost.
 So, What is Inflation ?
Inflation is the rate of increase in prices over a given period of time.
Inflation is typically a broad measure, such as the overall increase in
prices or the increase in the cost of living in a country.
For example : A pen cost Rs. 10 on 1.1.2021 and if the price of same
pen on 1.1.2022 is Rs.15 then in this case price increased by
Rs.5/-, and we can assume annual inflation as 50%.

Now assume you have Deposited Rs.10 @ 6% in SB on 1.1.2021 so as

to purchase a pen on 1.1.2022, and if the inflation is 50% then the
cost of the pen will be Rs.15 and your maturity value of the
deposit will be Rs. 10.60, so due to the inflationary pressure your
purchase power has exhausted and you have lost your money value.

On the contrary if you have invested Rs.10 in Gold, during inflation

gold price will go higher similar to the case as we have learned in
Sri Lankan data, and hence you can protect your money value.
 Inflation chart of Sri Lanka and India

• chart

SRI LANKA – 55% INDIA - 7%

 WHY YOU SHOULD INVEST IN GOLD?

Risk-Reduction and Wealth Creation can be

Achieved With Investing in gold. Gold as an
investment offers dual benefits of risk-
reduction and wealth creation. Even if there is
no economic crisis or geopolitical tensions, the
precious metal can still give decent returns in
the long term.
GOLD investment is common man’s insurance
against inflation
 8 Good Reasons To Own Gold

• Weakness of the U.S. Dollar

• Inflation Hedge
• Deflation Protection
• Geopolitical Uncertainty
• Supply Constraints
• Increasing Demand
• Portfolio Diversification
• The Bottom Line
 Weakness of the U.S. Dollar

• Although the U.S. dollar is one of the world's most important 

reserve currencies, when the value of the dollar falls against other
currencies as it did between 1998 and 2008, this often prompts people
to flock to the security of gold, which raises gold prices . The 
price of gold nearly tripled between 1998 and 2008, reaching the
$1,000-an-ounce milestone in early 2008 and nearly doubling
between 2008 and 2012, hitting above the $2,000 mark.

• The decline in the U.S. dollar occurred for a number of reasons,

including the country's large budget and trade deficits and a large
increase in the money supply.
 Inflation Hedge

• Gold has historically been an excellent hedge against 

inflation, because its price tends to rise when the 
cost of living increases. Over the past 50 years investors
have seen gold prices soar and the stock market plunge
during high-inflation years. This is because when fiat
currency loses its purchasing power to inflation, gold
tends to be priced in those currency units and thus tends
to arise along with everything else. Moreover, gold is
seen as a good store of value so people may be
encouraged to buy gold when they believe that their
local currency is losing value.
 Deflation Protection

• Deflation is defined as a period in which prices decrease,

when business activity slows and the economy is
burdened by excessive debt, which has not been seen
globally since the Great Depression of the 1930s
 (although a small degree of deflation occurred following
the 2008 financial crisis in some parts of the world).
During the Depression, the relative purchasing power of
gold soared while other prices dropped sharply. This is
because people chose to hoard cash, and the safest
place to hold cash was in gold and gold coin at the time.
 Geopolitical Uncertainty

• Gold retains its value not only in times of financial

uncertainty, but in times of geopolitical uncertainty.
It is often called the "crisis commodity," because
people flee to its relative safety when world
tensions rise; during such times, it often 
outperforms other investments. For example, gold
prices experienced some major price movements
this year in response to the crisis occurring in the 
European Union. Its price often rises the most
when confidence in governments is low.
 Supply Constraints

• Much of the supply of gold in the market since the 1990s has
come from sales of gold bullion from the vaults of global 
central banks. This selling by global central banks slowed
greatly in 2008. At the same time, production of new gold
from mines had been declining since 2000. According to
BullionVault.com, annual gold-mining output fell from 2,573
metric tons in 2000 to 2,444 metric tons in 2007 (however,
according to the U.S. Geological Survey, gold saw a rebound in
production with output hitting nearly 2,700 metric tons in
2011.)23 It can take from five to 10 years to bring a new mine
into production. As a general rule, reduction in the supply of
gold increases gold prices.
 Increasing Demand
• In previous years, increased wealth of emerging market economies
 boosted demand for gold. In many of these countries, gold is
intertwined into the culture. In China, where gold bars are a
traditional form of saving, the demand for gold has been steadfast.
India is the second largest gold-consuming nation in the world; it
has many uses there, including jewelry. As such, the Indian
wedding season in October is traditionally the time of the year that
sees the highest global demand for gold.

• Demand for gold has also grown among investors. Many are
beginning to see commodities, particularly gold, as an investment
class into which funds should be allocated. In fact, SPDR Gold Trust,
became one of the largest ETFs in the U.S., as well as the world's
largest holder of gold bullion as of 2019.
 Portfolio Diversification

• The key to diversification is finding investments that are 

not closely correlated to one another; gold has historically
had a negative correlation to stocks and other 
financial instruments. Recent history bears this out:
• The 1970s was great for gold, but terrible for stocks.
• The 1980s and 1990s were wonderful for stocks, but horrible
for gold.
• 2008 saw stocks drop substantially as consumers migrated to
gold.
• Properly diversified investors combine gold with stocks and
bonds in a portfolio to reduce the overall volatility and risk.
 The Bottom Line

• Gold should be an important part of a diversified

investment portfolio because its price increases in
response to events that cause the value of paper
investments, such as stocks and bonds, to decline.
Although the price of gold can be volatile in the 
short term, it has always maintained its value over
the long term. Through the years, it has served as a
hedge against inflation and the erosion of major
currencies, and thus is an investment well worth
considering.
 Why US Dollar is Reserve Currency
Tons of
Country Gold in Taiwan 424
Reserves            
United States 8,133 Kazakhstan 402 Poland 231 Libya 117 Denmark 66.55
Germany 3,359 Turkey 394 Belgium 227 Greece 114 Pakistan 64.65
Italy 2,452 Portugal 383 Algeria 174South Kor 104 Qatar 58.27
ea
France 2,436 Uzbekistan 362 Venezuela 161 Romania 104United Arab 54.85
Emirates
Russia 2,299 Saudi Arabia 323 Philippines 157 Iraq 96.42 Argentina 54.77
 Manappur
China 1,948 Britain 310 Singapore 154 Hungary 94.49am Finance 70 
 Muthoot
Switzerland 1,040 Lebanon 287 Brazil 130 Egypt 80.73Finance  170
Japan 846 Spain 282 Sweden 126 Australia 79.84   
India 754 Austria 280 South Africa 125 Kuwait 78.97   
Netherlands 612 Thailand 244 Mexico 120 Indonesia 78.57   

USA have largest Gold reserves and is economical advanced from other countries hence
US dollar is treated as reserve currency, and it is the medium for all international trade.
Manappuram Finance have 70 tons of gold which is higher than holdings of a few countries.
 ASSESSMENT TEST
1) Selling of Gold is an Hedge against
Inflation

A) True B ) False

Ans. B
 ASSESSMENT TEST
2) What is inflation?
A) Increase in price of commodites
B) Increase in purchasing power
C) Decrease in purchasing power
D) Very High Interest rate
E) Interest Rate is Zero

1) D,C ,A 2) A,B,C 3) C, D, E 4) A, E, B 5) D,C,B

Ans. 1
 ASSESSMENT TEST
3) _______ is known as reserve currency

A) Gold, B ) USD C) INR D) Dirham E)

Lankan Rupee

Ans. B
 ASSESSMENT TEST
4) ______ is common man insurance against
Inflation
a) Buying Gold
b) Buying Diamonds
c) Buying Pearls
d) All of the above

Ans. A
 ASSESSMENT TEST
5) Gold price are affected due to :-

a) Weakness of the U.S. Dollar b) Inflation Hedge c) Deflation Protection

d) Geopolitical Uncertainty e) Supply Constraints f)Increasing Demand
g) Portfolio Diversification h) The Bottom Line i) Central bank policy
j) Duty and Tax

1) j,I,h,g,f,e,d,c,a,b 2) a,b,c,e,f,j,h 3) a,b,c,d,e,f,g,h,J 4) a,b,d,f,j,I 5)e,f,a,b,I,j

Ans. 1
 ASSESSMENT TEST
6) A pen cost Rs. 20 on 1.1.2021 and if the price of same pen on 1.1.2022 is
Rs.25 then in this case price increased by Rs.5/-, and we can assume annual
inflation as _______.

A) 50% B) 25% c) 20% D) 10%

Ans. B
 ASSESSMENT TEST
7) A pen cost Rs.18 on 1.1.2021 and if the price of same pen on 1.1.2022 will be
______ if we assume annual inflation as 11.11%.

A) 2 b) 22 c) 10 d) 20 e) 25

Ans. d
 ASSESSMENT TEST
8) Arrange in chronological order on the basis of low risk to high risk .

A) Investment in Shares b) Investment in Mutual funds c) Investment in bonds

d) Investment in Gold

Ans. D,C, B, A 2) A,B,C,D 3) B,C,D,A 4) D,B,C,A

Ans - 4
 ASSESSMENT TEST
9) Arrange in chronological order on the basis of low risk to high risk .

A) Investment in Shares b) Investment in Mutual funds c) Investment in bonds

d) Investment in Gold

Ans. D,C, B, A 2) A,B,C,D 3) B,C,D,A 4) D,B,C,A

Ans - 4
 ASSESSMENT TEST
10) Manappuram Finance have 70tons of gold under its custody, which is much
higher than the holdings of some countries . And Ranks among First 50 top
gold hold countries

A) True B) False

Ans. A)