Barely a year ago, gold was trading around just above the INR 30,000 mark (INR 34,399 on 12th July 20191). In just about a year, gold prices have skyrocketed to today be at almost INR 50,000 (INR 49,175 on 13th July 20201) – that is an astounding jump of more than 40% in just a year’s time. This has made gold the most lucrative investment in the year gone by LEAPS and BOUNDS!
Where the stock market had reached its all-time high in January 20202, in a world and economy plagued by the covid pandemic, it is the gold commodity that is shining through.
Have you been contemplating investing in gold? But every time you think to invest you stop thinking maybe gold has reached its peak only to find it having increased even further a month later? So, is gold still investible at the nearly 50k mark today?
Let’s first look at the possible cause for the recent spike in gold prices…
While no one can predict with certainty how the price of any commodity or stock will perform in the future, gauging an understanding of what prompts changes in gold prices can certainly give you some insight….
Gold could be a safe haven in times of uncertainty
It is commonly said that ‘Gold is a friend of uncertainty’ and today India (and the world over) is probably witnessing one of the most uncertain times it has ever seen. From a pandemic of epic proportions prompting shutdown on majority of economic activity to impending external trade and security issues.
With investors unaware of what the economy and market hold in the future, gold can be considered for investing. As demand for investment gold increases, the prices keep rising as well. In fact, more than 23% of the annual 40% jump has come in post covid times in just the last 4 months3
Even RBI has acknowledged this, stating in May 2020 that gold prices remain firm due to flight to safety4
Volatile returns in other asset classes
With interest rates being continuously slashed with a view to push liquidity and boost growth in the economy, returns from debt-based instruments are dwindling. Stock market returns can also be subject to volatility in times of a global pandemic. In such a situation, gold can aim to offer reasonable returns.
Do these conditions still exist today, and can they continue to hold true in the future?
With new cases spiralling each day, across the world – the pandemic certainly does not seem to be tapering down. Especially till a vaccine or cure is found. Gold which seems to be thriving on uncertainty prompted by this pandemic can continue to be thronged to by investors keeping prices up.
One must bear in mind though that gold is viewed as an alternative investment mode especially when the stock market seems to be too volatile. The stock market however has an impact with the government announcing economic revival plans the stock markets may begin attracting investors, possibly taking away from gold to a certain extent.
Either way gold can be one of the investment avenues.
How can you invest in gold?
Conventional means of investing in physical gold involves incurring high making charges, liquidity issues, storage costs and security issues. An investment instrument that can give you the benefit of gold investing without the hassles of investing in physical gold is a Gold Exchange Traded Fund (‘Gold ETF’)
A gold ETF is a commodity-based exchange traded fund which has gold bullion as the underlying asset in its investment pool.
Investing in Gold ETF is akin to investing in gold and offers several benefits including flexibility, liquidity, low expense ratio etc. Take a look at our blog on Gold ETFs to get a better insight: Gold ETFs: All you need to know!
Derived - INR 39,836 on 17 March 2020 to INR 49,175 on 13th July 2020
Research, Centre for Policy. Minutes of the Monetary Policy Committee Meeting May 20 to 22, 2020 –https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=49909
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.