It is important to keep the portfolio diversified in order to invest your deposit capital in a better way. By investing in different asset classes, you get protection on your investment. Apart from investing in equities and bonds, investing in gold will improve your investment portfolio. Investment in gold has been benefited continuously for the last 2 years. This year also, due to the corona epidemic, gold crossed the 50 thousand mark for the first time and reached 56 thousand rupees per 10 grams. If you look at the return chart of gold, it will be enough that it has always given good returns in the long term.
At present, gold has weakened more than Rs 5000 from its record level. At the same time, the stock market is once again on high valuation. In such a situation, investors are confused about which asset class it may be better to invest in. Know what to do for better and balanced portfolio.
Nifty Vs Gold
Since the beginning of 2007, the Nifty has given a return of 199 per cent so far whereas Gold has given 408 per cent. The Nifty was at 4007 on 2 January 2007, which rose to 11971 on 14 October 2020. In comparison, gold was at 10300 on 2 June 2007 and on 14 October 2020 it rose to 52280. Stocks, bonds and real estate returns have fallen sharply during the Corona epidemic, but returns have been balanced to some extent when there is gold in the portfolio. Gold has always given better returns in the event of a weak stock market. The reduction in interest rates has also increased the attraction towards gold.
A chart is given below. From this, you can understand how the investment returns in Gold and Nifty have been. It shows the return on investment of 5 lakhs. In the Orange Curve only the returns of investment in Gold are shown, in Blue Curve only the investment in Nifty is shown. The third yellow curve is both mixed, meaning it is 40 per cent invested in gold and 60 per cent in Nifty. From this you can understand that diversified portfolio has given better returns than investing in Nifty.
Big reason for attraction in gold
Second wave of corona- The rising case of Covid-19 and the anticipation of a second wave of Corona have made big economies think about gold. Apart from this, the fear of slowdown in major global economies has also increased the attraction towards gold.
US Dollar weakness- The US dollar is weakening due to rising cases of coronavirus in the US and increasing trade deficit in the US. Apart from this, the reduction in US interest rates has also brought a crisis on its status as a world reserve currency. The US election is the most controversial topic around the world, causing weakness in the dollar. Geopolitical tensions between countries have led to an imbalance in trade and relations, making investment in gold a better option.
Invest in Digital Gold Secure- Due to the concerns about the safety of physical gold, many people shy away from investing in gold. But investment in gold has increased due to options like digital gold, gold sovereign bonds and option contracts as an alternative to physical gold.
Investors increase trend – The world’s largest investor Warren Buffett has invested in Canadian mining company Barrick Gold, which has also increased people’s confidence in gold. Apart from this, many central banks have purchased 84 lakh oz (2.38 lakh kg) gold in the first seven months of this year. According to the World Bank Council, the inflow of gold ETFs has increased by 32 percent.
(Author: Ajay Kedia, Director, Kedia Advisory)