People have more attraction towards physical gold in India, but for the purpose of the portfolio, Gold ETF, Gold Fund or Sovereign Gold Bonds are a better option.
Gold started glowing from the beginning of this year and due to the worldwide epidemic, its price set records of heights. Economic uncertainty due to Corona epidemic supported its rising sentiment. Due to this uncertainty, central banks around the world relaxed liquidity standards and governments gave relief packages so that any economic losses could be dealt with.
However, the rise in the price of gold in India has been going on since last year, because there were signs of economic slowdown and the rupee was falling against the dollar. Due to the fall in the rupee, the price of gold increased further because India imports the maximum gold it needs.
Gold accelerates when equity falls
In theory, there is an inverse relationship between gold prices and equities. This means that usually when the equity market remains volatile or there is an environment of uncertainty, investors are attracted to gold as a safe option. Gold is considered a safe investment whose prices can fluctuate but can never be zero.
On these occasions, on the equity floor and gold arsenal
For example, during the dotcom bubble, terrorist attack on the World Trade Center or the global economic downturn of 2008, the price of gold was very strong and this momentum remained until the market stabilized. In the early 2000s, gold prices in the developed countries were rising. The average gold price in 2001 was Rs 4300, which rose to Rs 5700 (15 per cent CAGR) in 2003. During the global recession of 2008, the price of gold was rising. The S&P BSI index fell by 50 per cent between January 2008 and February 2009 and gold prices rose 30 per cent to Rs 14500 from Rs 10,800 in the same period. Talking about the current situation, the stock market has fallen by about 40 percent and gold has gone up by 30 percent.
Gold up by 30% this year
Between 2007 and 2012, gold prices rose at a CAGR of 22 per cent, while in the next five years, its brightness decreased significantly and it was no longer attractive to investors. Talking about 2020, the price of gold globally reached $ 1900 per ounce, which was in 2011 before it. Talking about India, gold touched a peak of Rs 56,191 per ten grams in August. Although the price of gold is currently running at Rs 50 thousand per ten gram, but this year it has increased by 30 percent. Thus it remains in the best performing asset class.
Gold boom even further due to epidemic
As long as there is an atmosphere of uncertainty due to the epidemic, gold will remain glowing. However, it is difficult to predict that the price of gold can be seen as fast as it has been this year. Despite this, due to its inverse relationship with interest rates and its large role as an inflationary hedge against inflation and uncertainty, it may see further rise in prices. According to an estimate, the central bank will keep its current monetary policies and the government will continue the relief package if needed, due to which the price of gold will also be supported.
10-15% investment in gold
From the investor’s point of view, gold should be seen from the point of view of asset allocation as an advance hedge of the financial asset in the portfolio. In principle, 10-15 gold should be invested in the portfolio. However, you should consult your financial advisor about this.
ETF better than physical gold
People have more attraction towards physical gold in India, but for the purpose of portfolio, Gold ETF, Gold Fund or Sovereign Gold Bonds are a better option. The most flexible of these three is the Gold ETF. Compared to physical gold, gold ETF has many advantages, such as there is no need to worry about keeping it or theft because it is kept in demat form. This keeps a very low charge. If an investor wants to invest for any need of gold in future, then he can also collect units of gold in future through a SIP of just Rs. 1000.
(Article: Chintan Haria, Head- Product Development & Strategy, ICICI Prudential AMC)