This Festive Season Should I invest in Gold?
With the pandemic hitting the world economy, the precious metal started inching closer to its record high and then making a dip and rebounding has confused investors if this festive season is the time to invest in Gold. Historically, gold was always considered to be one of the safest options to invest in as this is one such commodity that has given returns even during the crises. And now in the current situation where the world economy is grappling to survive, the yellow metal has again out performed with a spike of around 28% in 2020. The out-performance of this commodity in this year, when even crude-oil witnessed its lowest, is only reaffirming the fact that it is one of the most reliable investment options. And obviously, those who have missed the opportunity, would now be considering increasing the allocation to this asset class. So let's try to analyse if it is really wise to do so.
What factors were driving the Gold rally?
Generally, its been observed that the investors tend to turn towards Gold when the market crashes, but now even when the markets are rallying, gold continues to inch higher. Various factors such as the fear of politicians’ decision to push through unprecedented stimulus packages, speculations about further government-ordered lockdowns, global central banks' plans to print money faster to increase the spending, and US Dollor's sudden decline against Euro and YEN, have resulted in a rare combination of raising inflation and sluggish growth. In such an uncertain scenario, the investors are looking for safe havens which would not lose value.
Though we did witness the stagnation in the Gold price for around 2-3 years, it made up for the losses in the last 6-12 months. With prices scaling up by over 40%, the investors are reassured that this is one of the most reliable options when they are looking at diversifying their portfolio.
Is it a good time to invest in Gold?
According to market experts, there is no good or bad time to buy gold as it is mainly a long term investment option. Further, here are speculations that gold might hit its another high in a few months to come so it might prove to be a great time to invest. Also, the global uncertainty is a more reliable asset class. Let’s not forget that in the previous two quarters during the uncertainties and fluctuations, gold has helped maintain the stability in the portfolio. Furthermore, one can consider reducing the allocation to the asset class after the end of this period where we are making a leap in the dark. But returns from this yellow metal will be influenced by demand for the commodity, exchange rate between USD and INR, and prices per ounce in USD. So one needs to keep a close eye on all the three factors while making a decisions.
What should be the ideal share of Gold in a portfolio?
While the ideal share of gold in your portfolio should be minimum in between 1%-5%, it could shift higher to around 5% - 15% depending on the nature of your requirements, financial goals and risk appetite. Also, looking at the current scenario, even the minor increase in the proportion of gold in your portfolio can have a great bearing.
How do I go about with Gold Investment?
There are multiple ways in which you can invest in the Gold. A buyer can choose how he would want to go ahead with the investment by contemplating on the nature of every form to identify which is most comfortable to him. The options to buy gold include:
Digital Gold: This is the most modern and potentially the safest and low-cost way to accumulate gold. Digital gold provides you the flexibility to get the gold converted into a physical form at any given point once you have accumulated at least 0.5 gram gold. The best part about this option is the flexibility in terms of the amount of investment. You can start with as low as Rs50 in this option. You can invest in digital gold though reliable platforms like 5paisa App.
Physical Gold: This is the most traditional way of holding this commodity. It offers you maximum liquidity. However, it also calls for the cost of storage and insurance. This way you can directly invest in coins, jewellery or any such gold accumulation schemes offered by your jeweler to buy a gold product of your choice.
Paper Gold: This is another cost effective substitute to the physical gold that includes options like Gold exchange traded funds (ETF) and Sovereign Gold Bonds (SGB). While ETF provides you flexibility of buying and selling it at any point it time through exchanges, you can also start investment in it through SIP. However, in this option you need to buy a minimum of 1 gram gold. On the other hand SGB is issued by the government and does not allow you as much flexibility as the buying window is opened by government for a specified period.
Continued global uncertainty that has fueled the surge is expected to continue for quite some time. So if at all you are considering diversifying your portfolio to this investment option, this could prove to be a great opportunity to do so. Furthermore, we do not recommend looking at short term returns while buying this commodity. Also, exceeding the recommended limits for the allocation being lured by the unprecedented rally might defeat the purpose. So the key would be to bifurcate your portfolio but allocation to this asset class should ideally not exceed 15% as of now.
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