'Gold investment speculative, not inflation-hedge' - RBI Deputy governor Chakrabarty

IMP-OST : 21st Jan, 2013

www.i-securesolutions.in : 'Gold investment speculative, not inflation-hedge' - RBI Deputy governor Chakrabarty

January 18, 2013

Source : Rediff

Terming investment in gold as a speculative activity and not hedge against inflation, RBI Deputy Governor K C Chakrabarty said on Friday high returns the precious metal offers only reflects high risks associated with it.

Discounting the argument that gold is a hedge against inflation, the senior-most Deputy Governor wondered how a hedge instrument can offer as high as 37 per cent return year after year.

"If gold has been giving 37 per cent return for the past few years, how can it be a hedge against inflation?. . .

The second logic is that gold is a safe investment. How come a hedge gives a 37 per cent return?...that means it has become speculation," Chakrabarty said while addressing the students of the Vivekananda Education Society in Mumbai.

He said analysis of risk-return trade-off shows that anything which gives higher returns is a risky asset.

"In finance, you know there is a risk-return trade off.

"Anything that gives high returns has higher risks associated with it.

"If gold is giving 37 per cent return that means it is very risky. (But) this risk is not manifested (and) that is why it looks safe.

"I have no problem if you say you are speculating in gold. But don't say gold is hedge against inflation," he said.