Joy Alukkas, owner of one of India's leading jewellery companies -- the Joy Alukkas Group -- says gold is undoubtedly the best commodity to invest in these days. "Gold prices may be going up. But undoubtedly, it is gold that has the global charm for huge investment potential," he said. Quoting from a new survey from New York-based hedge fund Ospraie Management LLC, Alukkas said gold will be among the five best commodity-investment opportunities over the next two years, thanks to the declining production of the yellow metal.

The hedge fund said that rising costs and lack of investment have limited output in South Africa, the world's largest gold producer, Peru and other countries. "We look at gold as a barometer of wealth in the world," Ospraie said adding: "The underpinning of demand is very strong." In the last few years, growing purchasing power in Asian countries such as India and China has spurred demand for gold, pushing prices up 11% in the past year. Gold production growth exceeded population growth from the 1840s to 1940s. It declined after World War II for almost 50 years, but started up again in 1989.

But according to the data from the World Gold Council, gold production dropped 3.1% to a 10-year low of 2,471 metric tonnes in 2006. Worldwide gold mine production had fallen by five per cent in 2004, with 2,464 tonnes marking an eight-year low. Experts say rising costs are hindering the exploration by gold producers such as Barrick Gold Corp, the world's largest gold mining company. Newmont Mining Corp, the second biggest producer, said in April first-quarter profit plunged 67% as output slumped and costs rose.

The price of gold has been rising for over six years. It gained 158% since then. That works out to 26% per annum, which has consistently been better than most other markets. Global commodity companies believe that gold prices will rise for years to come, eventually reaching at least $2000 and it will probably go even higher. Investment experts say gold is the best commodity to invest in because it has stood the test of time. "Gold has a 5,000-year solid track record. It is a time-tested and valuable commodity. It always has been, and it always will be. So it is the ideal commodity to invest in these days," says Prahlad Patel, a gold investment expert based in Mumbai. According to him, gold is real money and it has maintained its purchasing power over the centuries. "As the dollar continues to slide, and spending and money creation continue on their merry way, gold will be the ultimate beneficiary," he added.

Experts have also predicted that China will become the largest gold producer in the world by 2010. Between 1997 and 2006 production of gold in China increased by 162.8 tonnes to 247.2 tonnes. While gold production in traditional producing countries such as South Africa has declined over recent years, output from emerging gold producing countries has increased from 17.7 per cent to 29.8 per cent in the last ten years. China's gold production for the first quarter of 2007 was recently recorded at 56.183 tonnes, an increase of 15.99 per cent on the same period last year.

India-Australia Gold Love Story

Latest reports say India has emerged as the fourth-largest merchandise gold export market for Australia in 2006-07. Gold exports comprise nearly half of all merchandise exports to India from Australia, says a report from the Australia India Business Council. It said in 2006-07 India was Australia's largest market for gold, second-largest market for coal and copper ore, and third-largest market for wool. Australia has also agreed to allow the export of uranium to India, subject to strict conditions. Australian exports to India rose 37 per cent in 2006-07 as against 22 per cent in 2005-06. Last year, merchandise exports from Australia to India were worth AU$10.1 billion, up AU$2.7 billion.

According to Australia's trade minister Warren Truss, the booming export of his country to India is largely driven by gold. He said the major commodity movements from Australia to India during 2006-2007 were gold (including gold re-exported after industrial processing) amounting to AU$4.7 billion, up $1.8 billion (63 per cent); copper ores amounting to AU$1.0 billion, up $165 million (19 per cent); and vegetable exports worth AU$150 million, up AU$99 million (191 per cent). "The success of Australia's long-term engagement with India will rely heavily on the commercial links built up by Australian businesses," Truss pointed out.

Should India hike its gold reserves?

Should India increase its gold reserves to further fuel the booming economy? This is one question that the Reserve Bank of India [Get Quote] is debating these days. Globally, India is ranked sixth in the top-ten list of the gold and currency reserves. The first three positions are being held by Japan, Russia and China. China has state currency reserves with over $940 billion, while Japan has $871.9 billion currency reserves. Russia is in the third position with $265.6 billion. Taiwan occupies the fourth position with $260.4 billion reserves, while South Korea is placed fifth with $225.7 billion reserves, followed by India with $164 billion and Singapore with $128.7 billion. Hong Kong, Germany and France wrap up the list of ten leaders.

These days, speculation is rife on whether India should hike the proportion of gold in the country's foreign exchange reserves. In the last few years, the foreign exchange reserves in India have risen significantly while gold reserves have remained static. Today, the proportion of gold in forex reserves has come down to a pitiful low of 3.6 per cent. The foreign exchange reserves in India are invested in multi-currency, multi-asset portfolios.

According to official data, in March 2006, out of the total foreign currency assets of $145.1 billion, $35.2 billion was invested in securities, $65.4 billion was deposited with other central banks -- BIS & IMF -- and $44.5 billion was in the form of deposits with foreign commercial banks. According to former Reserve Bank of India deputy governor S S Tarapore gold as a reserve asset has a longer and more enduring history than flat money, and thus deserved a better representation in the country's forex reserves. He has argued that it is time India increased the gold reserves in tune with the booming economy.

But this is not a decision which the government would find easy to take. For instance, if the gold proportion of the forex reserves is raised to 10% of total reserves, it would require a forex outgo to the tune of about $15 billion at current prices. Moreover, if India hikes the gold reserves, it could also affect the bullion market in a big way. But officials in the finance ministry said discussions are on between the Reserve Bank experts and key officers of the Prime Minister's Office to decide whether it is prudent for India to hike the gold reserves. In fact, several central banks like in China and Russia are now considering increase in their reserves.