In India, people use to invest their money in Gold way long-established. However, the question comes by 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 43000-47000 per 10 grams? What would be the right approach to invest along with fair price and expected target in the present condition?
For investors – To your question and many others, you should go through the following given factors :
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 affect you. As it been researched that Gold will do go in the 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 in equity to Gold, bonds to hedge their portfolio. But due to recent spike in yield in bonds because of liquidity issues would nudge investors towards gold. So, imagine the demand for gold in the coming days.
Will Gold Shine More?
Gold has given an average return of 14.10% annually since 1973. Moreover, the value of Rupee is also depreciating and hit a lifetime high of Rs77 on 21st April. The economists are expecting more drop in the value of Rupee in the coming days due to 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.
The Right way to invest
The best way to invest in Gold can be done through Gold-backed ETF or Gold Sovereign Bonds of Government of India. Under Gold Sovereign Bond, investors will get interested as a regular income apart from the increasing value of the bond. Moreover, if an investor sells this Gold Soverign 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.