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Stay in gold, but be on your toes

business Updated: Sep 12, 2011 21:32 IST

Investments analysts like me who have been saying that gold is a bubble are having to answer some challenging questions. One reader asked that gold was a bubble at Rs 12,000 per 10 gram, now it's at Rs 28,000 and you're still saying that it's a bubble. I don't actually understand the logic-if I believed that gold was a bubble at Rs 12,000, then I can hardly think that it isn't one now. Of course, just the fact that an increasing number of people think that gold prices are a bubble doesn't mean that the bubble has to deflate immediately.

Actually, those who believe that gold is a bubble are much better equipped mentally to make money out of it. They aren't wedded to legacy ideas that belong to the physical gold era. They just see gold as yet another line on a chart. The line could represent anything-any of the other financial instruments that traders have ridden up and down in recent years. If you believe that this is a bubble, only then are you going to stay on your toes, keep your average cost under control and hedge your bets. Only then will you be watching out for the steep decline that will inevitably arrive for gold, as it does for every such bull run. And only then will you be in a frame of mind take your money and run, looking around for the next bubble to work.

At the end of the day, the losers will be those who still believe that this is the old gold, the same one that had been bought for your mother's trousseau. It isn't. It's just another financial asset that has a hot story today. The fact that it's a bubble doesn't mean don't invest in it. It means that walk in with your eyes open to the reality.