The book Going for Gold by author Nanda Menon is a book on gold, for gold and 'buy' gold. While one may debate about the view on gold, it is evident that Nanda is extremely passionate about gold and its investment case. The book contains some interesting facts and figures about gold as a commodity.
The book attempts to put out a thesis by giving a perspective on aspects such as the history and psychology of gold, its consumption, macros (both global and local), rarity, demand and supply. It also delves into various other investment alternatives and positioning of gold as an asset class. After putting forward the thesis, the book also provides an insight into various investment vehicles through which one can invest in gold.
Nanda gives a good perspective on the historical references of gold by highlighting why, apart from a mere economic sense, gold was always a favoured metal. From India's consumption pattern, the book highlights that it has great sentimental, religious and spiritual value, by tracing its roots to scriptures. Nanda also presents an interesting story on 'gold digging ants'.
After establishing a historical perspective and the emotional value associated with gold, Nanda moves on to the economic aspect of local and global macros. On local macros, Nanda emphasises on government debt as a percentage of GDP, its fiscal and current account deficit and why it is structural, in his view, as well as a view on currency performance and the effect on gold prices. Indeed, a large part of gold prices in India is dependent on the performance of our currency (INR). However, I would have loved to see some comparisons on various deficits with other countries to understand where India stands and the basis of extrapolation of currency depreciation, which is used as one variable for investing in gold.
Coming to global macros, the book beautifully puts forward the history of paper currency and the Bretton Woods system. It raises very important points about the efficacy of the current currency system, its drawbacks and why gold can be the preferred commodity for storage of one's wealth. His perspective on "I promise to pay the bearer" written on currency notes is enriching.
One of the most interesting parts of the book, and my favourite, is the explanation of the atomic composition of gold, and why such an atomic weight is a rare formation. This piece is aptly titled 'Stardust' in the book. In addition to the formation of gold reserves, rarity is also a factor for extractability of these very reserves, which is extremely difficult.
Once a background of the commodity and its rarity is covered and established, Nanda swiftly takes up the very basis of price performance of any asset - the demand and supply mechanics. He argues in an elaborate chapter that the demand for gold will increase primarily due to a combination of usage (jewellery and industrial) and investments (personal, country reserves and sovereign wealth funds). On the supply side, the dynamics of reserves, resources and cost of production are well explained. The cost of production data needs specific mention as it was most convincing. However, it would have been great if topics such as the gold deposit scheme by the Government of India and its potential effect on the gold prices would have been covered, since India is one of the largest consumers of gold in the world.
Overall, Nanda manages to present a convincing case and a story of having gold as part of your asset allocation. He extends the investment thesis to actionable investment avenues directly or indirectly related to gold. The book covers the different investment vehicles with gold as the underlying basis such as ETFs, physical gold, derivatives and mining companies. The case of BRE-X needs a mention in the segment of investments in gold mining companies for it excellently highlights the high risk strategy and the number of variables associated with investing in gold mining companies.
The book also compares gold with other precious commodities like silver, platinum and diamonds. Nanda, while comparing gold with other commodities, stresses on the universal acceptability, long-lasting trust and fraction ownership as big advantages, along with its consistent performance, till now, vis--vis others.
However, the book would have added even more value if it covered aspects of proper comparison of gold to inflation and equities as an asset class. It would also have been insightful if the book could have given a perspective on gold and capital formation, and usefulness in economic growth.
Overall, the book is a guide to the great investment potential of gold. It is a good read for those wanting to know more about the dynamics of gold.
The reviewer is Managing Director, Ambit Investment Advisors Private Ltd.
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