Is Gold investment good now?

In parity with the global markets, the price of all time favorite but expensive Yellow Metal has seen a remarkable downswing in Indian markets too. The reasons could be many but the fact is that it is 21 percent below the highs hit during the last year. The prices may or may not fall any further.

Investment in gold needs to be done timely to gain profits in the shorter period of time. But again, what is the correct or best time to buy gold depends upon the natural instinct of many common buyers and they take impromptu decisions looking at the practical feasibility as it is difficult to predict the behaviour of gold prices in general.

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Gold prices depend upon many factors. One such factor is the demand and supply equation. Gold can not be valued based on intrinsic value or cash flow. Geopolitical factors do play their role. There is always a possibility that sudden shifts might take place making it volatile due to the above factors, though the prices may have remained dormant for a pretty longer period of time. 

What has affected the prices of Gold recently could be because of the investors coming forward to buy assets aggressively enough in the post lockdown scenario, despite those assets carrying higher risks. The stock market too has behaved in a similar manner.The US dollar is dominant amongst all the currencies and there is also a rise in the bond yields. All these factors collectively could have pulled the gold price down.

How much weightage should be given to Gold in your investment portfolio?: 

Take Gold as a diversification tool in your overall investment portfolio. Never try to allocate a lump-sum but make sure it holds 5-15 percent of your investments. Usually Gold is looked at as a small part of the portfolio. Make sure your entry timings are correct. You may choose to invest more later when there is a sudden fall in prices just like in recent times. 

Gold is a natural hedge and should not be confused to be a core asset. Equity or debt are still better options to park the majority of your funds. Sovereign Gold Bonds and Gold ETS can be used to invest together as they too have their distinct features.

Investing in either of these can be justified because-

  • To make short-term profits, buying and selling of gold takes place on a regular basis. In that case liquidity becomes important and hence Gold ETS is a good option having suitable features.  
  • When there is no plan to sell gold investments before 7-8 years and are held for a longer term, Gold bonds should be chosen.
  • SGBs provide an additional 2.5 percent interest and gold price appreciation prospects. 
  • Gold ETFs assure liquidity. 
  • At maturity gold bonds are not taxable. 
  • The only thing is that the maturity period is 8 years. But even when they are sold in the secondary market before 5 years they have a low liquidity risk.

It would be a good approach to have  both ETS and gold bonds. The former for liquidity purposes and the latter for higher yields. Slowly this proportion can be increased. The current situation allows one to invest more than the advisable 5-15 percent allocation anticipating further downward trend in gold prices. 

The prices of gold have fallen by over Rs.10,000 from the highs of Rs.56,200 per ten grams in August 2020. Expectations are that the price may go down as low as Rs.43,000. Jewelers have surely benefitted and for individual buyers also, this is the good opportunity to accumulate gold at these prices. 

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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