Where will gold go from here?

I have been getting repeated queries on the outlook and performance of gold in recent times. I also hear widespread talks of expected major (?) correction in gold price amongst financial analyst. People who know me and my views on gold, this may not be a surprise; they know gold is real money.

In an era where, long term strategic allocation is misplaced with the short term tactical allocation, forget about generating returns, persevering wealth now-a-days seems to be a nightmare. Few days back, I was reading an interesting article on Kondratieff Economic Cycle and comparing that with the current markets scenario, it now seems that we may to be heading or already into the most difficult phase of India's Kondratieff winter.

In a scenario where global central banks' printing press work 24x7x365, almost every single assets in the world has now reached unsustainable levels. Speculation and rigging is rampant in most cases. Facebook mania is just another example of one such madness. A $100 billion company is less than half its IPO valuation now. It is herd behaviour and investors still seems to learn no lessons from the past or they are trapped with forces beyond their control.

A 3BHK apartment in an unheard location near Mumbai-Pune Highway some 120kms away from Mumbai costs Rs.75lacs, just because of its close (??) proximity to Mumbai. Hard to believe, isn’t? When, most resources go into such concentrated asset class, it reaches to unsustainable levels, making it a classic case for a bubble. Major economic crashes happens as a fall out of real estate crisis - be it US, UK, Japan or Dubai. I am told a property worth Rs.1crore in Dubai during 2008 is worth Rs.30lakhs today. It wiped out enormous amount of wealth not only for speculators, but also for real investors. And, only a huge deflationary pressure or depression can bring these excesses back to normal. Economist calls this as Kondratieff winter.

It shall be very painful, but we have nowhere to escape. How will gold behave in a depression? That is a trillion dollar question. But, one thing is certain, gold hasn't reached anywhere near to this speculative mania. Smart money is moving into it; gold ETPs overtook Italy to become the world's 3rd largest hoard at 78.99 million ounces. With odds of global recession at 100%, it is a clear message.

As long as the printing press works nonstop, a rupee today shall be much lesser in value tomorrow. Where will one keep his cash safely? Market forces shall tend to bring back this anomaly to normal by debasing one asset to another or to a set of other assets. The sensex/gold ratio was at 0.09 back 1980-81; and with the current ratio hovering around 0.58, we are long way to go as far as gold is concerned. Either the sensex has to correct or gold has to appreciate or both has to happen simultaneously for us to reach anywhere near to the previous levels achieved during 1980s. Now, it is a simple math to arrive at a price of gold.

I am not a gold bug, but just "Super Bullish".