This Dhanteras, Add Some Lustre To Your Portfolio With Gold Or Silver

Dhanteras is observed on the first day of Diwali to usher in prosperity and good luck by welcoming Lord Dhanvantri, the Hindu god of wealth, on the auspicious occasion.

Buying gold or silver on this day is considered auspicious and is believed to bring wealth all year round. However, while selecting these assets for investments, you should consider these precious metals' current and future demand trends.

Demand Trend

Gold and silver have always been associated with prosperity and wealth In India. Therefore these metals have always been a primary investment choice for most Indian households.

Apart from jewellery, gold is also used in making electronic components. On the other hand, silver has various industrial applications, from solar and electronic vehicles to 5G components, which drive its demand.

In the second quarter (Q2) of 2022, India's total gold imports stood at 170 tonnes, compared to 131.6 tonnes in the same period a year ago, up by 34 per cent, the World Gold Council (WGC) data showed.

Commenting on gold demand, Somasundaram P.R., WGC's regional CEO, said, "India has developed a strong cultural bond between gold and auspicious festivals, such as Dhanteras, supported by sound economic reasoning. Moreover, with gold being a valuable hedge against inflation, further price declines in the coming weeks could result in a demand surge."

In the case of silver, the total silver fabrication demand was 16,699 tonnes in 2021. The demand is expected to increase to 18,267 tonnes annually from 2022-2025. An HDFC Mutual Fund report predicted automobile and solar sectors would fuel silver demand.

Which Metal Is A Better Hedge Against Inflation?

Gold is traded globally; therefore, it can provide a hedge against currency depreciation. "Gold has historically been known to serve as an Inflation hedge. However, over the last 2-3 decades, there has been a change in the historical correlation of gold with inflation. As there is a rise in interest rates globally, gold prices have fallen. Therefore, gold, which is good as an
 
investment for slightly higher inflation, may not be a good investment in high or rising interest rates," said Kartik Parekh, a SEBI-registered investment advisor and co-founder of fintech platform Gochanakya.

Silver, on the other hand, has a variety of industrial applications. Its demand is expected to increase in the coming years. "Silver has a great industrial demand. Heavy industries, technology, green energy, automobile sectors, etc., have a huge demand for silver, making this metal slightly more sensitive to economic changes. Silver is seen as a good investment as a hedge against inflation," Kartik added.

Recession

Precious metals, like gold, performed considerably well during the 2002 recession. Gold was up 24.1 per cent from the previous year, while Indian equities were up by a meager 2.7 per cent in the aftermath of the Dotcom bubble. In 2008, gold was up 26.1 per cent, while Indian equities were down 51.8 per cent, said a Motilal Oswal report.

The gold price has often provided a hedge against recession. This is because gold prices are inversely related to markets. "Gold has been known as a countercyclical investment. So, when the economy is rising, investors invest in market-related assets by pulling out money from gold, but when the economy is uncertain, they invest more in gold, said Kartik.

Which Precious Metal Should You Add To Your Portfolio?

Investors should consider factors like volatility, risk appetite, and future demands before investing in precious metals. "Buying gold or silver is considered auspicious on the day of Dhanteras. Gold is a less volatile investment, and silver is slightly more volatile. However, while considering an investment, one should consider the portfolio as a whole, economic factors, current prices, and individual investing needs," Kartik said.

Forms of Gold And Silver Investments

Gold: You can invest in gold through "jewelry, coins, bars, gold exchange-traded funds, gold funds, sovereign gold bond schemes, etc.," said Kartik.

Silver: You can invest in physical forms of silver coins, biscuits, or jewellery. If you don't want the hassle of storing silver, you can invest through the stock market instruments like silver-exchange traded funds (ETF) and silver mining stocks.