Is Investing in Gold a Good Option For You?

With an average daily trading volume of around $183 billion, gold is considered to be one of the largest financial assets in the world. Last year, with the onset of the Covid-19 virus, and the subsequent equity market crash, gold saw a sharp surge crossing the Rs 57,000 per 10-gram levels. However, lately, MCX Gold is trading near Rs 46,000 level, with support seen at Rs 45,850 - 45,600, and resistance is seen at Rs 46,370 - 46,700. This correction, from all-time high levels of Rs 56,000-57,000, is being looked at as an opportunity to invest in gold. Many investors, spooked by “overheated” equity markets, feel gold is a sound investment for especially those with lower risk appetite.

Add to this, the lucrativeness of digital or paper gold is also a bonus especially when it comes to Sovereign Gold Bonds, which offer an annual interest at 2 per cent on investment, over and above the return realised through appreciation of gold prices. 

According to Ashraf Rizvi, Founder and CEO, Gilded, while gold has been historically seen as a safe investment, digital gold has been making its way into Indian homes. 

“Investing in digital gold will not only enable customers to own Swiss gold but will also possess a safe asset that will give long-term returns and build wealth. While digital gold rose in popularity during the pandemic, it will continue to gain preference over physical gold as an investment,” he said.

According to Archit Gupta, Founder, and CEO, ClearTax, gold, and equity markets are inversely related. “The gold prices shot up when the stock markets fell due to the onset of the Covid-19 pandemic. However, as the world got used to living the new normal, the equity markets stabilised and brought down the gold price,” he explained.

However, he added, that one should not consider gold jewellery as an investment, as it comes with considerable additional costs such as making and wastage charges. Instead, you may invest in gold ETFs, he advised. Gold mutual funds are also a good option as compared to physical gold. One may consider allocating 10-15 per cent of their portfolio towards gold in all forms. 

Nikhil Kamath, Co-founder, and CIO of True Beacon and Zerodha said gold has always been considered a “safe haven” asset, especially in the Indian context. “However, the price of gold is influenced by the market and a variety of other external factors, making it an inherently riskier asset than FDs, PPFs, etc. Investors that are comfortable with a moderate amount of risk, are looking to diversify their portfolios and provide a hedge to other elements of their portfolio, can look at gold,” he said. 

He added that while gold is considered to be an inflation-beating asset, the metal should be invested in to serve as a hedge to other investments, rather than purely for returns. “Gold, a commodity that does well when uncertainty is high, works well as a hedge against other asset classes such as equity and is relatively stable, but long-term returns are generally quite low,” he explained.

Nish Bhatt, Founder, and CEO, Millwood Kane International, said that after stellar gains in 2019 and 2020, the yellow metal has been losing sheen in the past several months. With the vaccination drive across the globe and the hope of an economic recovery - the funds are flowing to other high return-yielding assets. “Moving forward, gold is expected to trade sideways with an outlook majorly dependent on the way pandemic is controlled, movement of the US dollar. Investors are advised to have a diversified portfolio with a certain portion of their assets in gold, up to 10-15% or depending on their risk appetite,” he advised.