Gold has long been considered a highly sought-after investment destination because of its reputation as a store of value. The price of yellow metal rallied over 20 percent from March 2020 lows when the COVID-19 pandemic emerged for the first time.
The markets suffered during the pandemic but showed signs of recovery at the end of 2020 when the price of gold declined marginally.
Recently, gold rates have shown falling trends.
So, is it right to invest in the yellow metal now?
Most financial advisors say that gold should always form a small but crucial part of one’s portfolio.
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According to Adhil Shetty, CEO at BankBazaar.com, most risk-averse investors look for safety, liquidity, and returns before investing and gold has delivered 9.8 percent annualised CAGR returns in the last 10 years, making it a safe illiquid investment.
So, ideally, Shetty believes, investors should not allocate more than 8-15 percent of their portfolio to gold. Also, physical gold is illiquid and digital gold can be a much better alternative.
“Based on the investment needs, investment horizon, risk appetite, and budget, one may choose to buy Sovereign Gold Bonds (SGBs), Exchange Traded Funds (ETFs), or Mutual Funds (MFs). SGBs hold a clear advantage over other forms of gold investing. The price of SGBs are linked to the price of 24k gold, and the discounted price of the latest tranche of SGBs is roughly the same as the price of 24k physical gold. The interest on investment and low transaction costs make SGBs more attractive,” Shetty suggests.
Pranjal Kamra, founder and CEO – Finology further cites the significance of diversification due to uncertain economic environment and volatility in the stock market.
Also read: Here are key things to consider before investing in gold
“For long-term financial goals, an individual needs to have adequate equity exposure, but as we know that equity investments are associated with high volatility, having investments in negatively correlated assets such as gold, act as a hedge against big swings in an equity portfolio. Thus, one can consider buying sovereign gold bonds, if they do not have an adequate gold allocation,” Kamra advises.
However, he warns that asset class should not be looked at as a primary investment vehicle; rather it should be used for portfolio diversification purposes.
Talking about recent trends, Prof Arvind Sahay, chairperson of India Gold Policy Centre at IIM Ahmedabad tells that it is possible that customers are seeing the current decline in prices as a good opportunity to accumulate.
Gold demand in the past, Sahay opines, has shown a stronger positive correlation to more than expected increase in returns with equities.
He believes that the recent demand is also a function of this increased spend, considering that there aren’t many avenues to spend in times of restricted travel.
On price point in rupee terms, Sahay’s view is that from current levels the potential upside in prices outweighs the downside.
“The rise to a new record high of cryptocurrencies, its volatility, and international benchmark equity indices only make it all look frothier, very likely that history would repeat with international investors starting to diversify and adding gold to protect their portfolio,” he states.
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
Phillip Peters is an independent journalist, entrepreneur, digital marketer and press release publisher. He has a soft spot for technology, gadgets, cryptos and writing about health and politics. He also loves travelling the world! Phillip has been working with KukaUSA full time since September 2018.