All that glitters is not gold

Why Gold:
Gold’s lack of correlation with equities in particular is one of its
most striking investment attributes.

Q3 2006 Summary:
Market volatility levelling off. During volatile markets, consumers stay away from jewellery, implies more jewellery buying in the next 2 quarters.

Industrial demand fell by 2%, because of more silicon, Industrial future might be gradually tapering off.

Gold production has been growing at 2% annually. There has always been a mismatch between demand and supply.

Risks
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India has always been the largest consumer of gold (historical reasons)

A report from WGC clearly says: "The association between gold and “auspiciousness” has been used in recent years to promote the idea of buying gold. Over the past five years".

Once our people realise what is happenning, this gold rush might slow down.

http://kitco.com/LFgif/au75-pres.gif
1975-2006 Shows that we are close to the big peak. Does it mean a fall soon?

Indians are attracted to gold as investment, as rupee is not yet fully convertible, and gold is a means of diversifying. I think our FM mentioned that ruppee will get full convertibility in another 5 years.

Conclusion:
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Gold as a strategic asset - WGC
"Gold is highly susceptible to geopolitical factors. During times of relative stability a small positive allocation may be useful. During time periods of abnormally positive economic activity gold returns may reflect multiplier effects associated with cultural issues."

"given a relatively small portfolio allocation to gold or commodities, the transparency and low correlation of gold with
other major asset classes makes it an attractive investment instrument. Depending on the assumptions, empirical evidence indicates that as much as 4% gold allocation may provide useful strategic benefits."

"Our empirical findings show that a small allocation to gold, in the order of 1 to 2%, is a significant and useful component of low risk portfolios."

References:
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Gold info http://en.wikipedia.org/wiki/Gold_as_an_investment
http://www.gold.org/ (I found WGC reports to be unbiased, even though I was skeptical in the beginning)
The 7 Golden Rules http://www.austincoins.com/7_gold.htm