Investors all over the world are shifting their risky assets investments such as stocks to risk-free assets due to uncertainty caused by the pandemic in the global market. Risk-free assets are Government bonds, Gold, etc.
In India, people use to invest their money in gold way long-established. However, the question comes from traders – Is it make sense to invest in yellow metal now when it is already recovered around 16 % in the calendar year and in the range of around 45000-47000 per 10 grams?
What would be the right approach to invest along with fair price and expected target in the present condition? Well for investors – In order to answer your question and many others, you should go through the factors given below.
Is It Good to Invest in Gold?
If you invest and accumulating wealth for the long term, then these small fluctuations of up or down movement should not affect you. As it been researched that gold will do well in times of deflation by Oxford Economics. Deflation is a time where interest rates are low, consumption demand declines and there’s financial stress in an economy.
As per the record, gold has always performed well even in 2000 (dotcom bubble), in 2008 (Global Financial Crises), and even in the present global crisis due to (Coronavirus Pandemic). There a drop in Dalal street, no portfolio remained immune aggravated by a fall in crude oil prices.
As we are all aware that gold is negatively correlated to equities. It has been seen cutting global GDP by Global Rating Agencies and the International Monetary Fund(IMF). It will have a negative impact on equities resulting in investors shifting their investments from equity to Gold, bonds to hedge their portfolio. But due to recent spike in yield in bonds and rising liquidity issues would nudge investors towards gold. So, the demand for gold seems to goings up in the coming days.
Will Gold Shine More?
Gold has given an average return of 14.10% annually since 1973. Moreover, the value of the Rupee is also depreciating and hit Rs77 on 21st April. The economists are expecting more drop in the value of the Rupee in the coming days due to the coronavirus pandemic.
World Gold Mines have also shut their business temporarily; which will also have a positive impact on prices of Gold – High demand, less supply.
What’s The Right Approach to Invest?
The best way to invest in Gold can be done through Gold-backed ETF or Gold Sovereign Bonds of the Government of India. Under Gold Sovereign Bond, investors will get the interest as a regular income apart from the increasing value of the bond. Moreover, if an investor sells this Gold Sovereign Bond after the maturity period of the bond then the capital gain from the bond will be exempt from the tax.
Investing in Gold through ETF and Sovereign Bonds are tradable at the stock exchange, so there would be no liquidity issue. Further, it will help you save from TCS or other taxes that we need to incur at the time of buying physical Gold.