As the global geopolitical crisis fueled by the Russia-Ukraine war goes through new twists and turns, the equity markets continue to witness turbulence. No one knows whether the war will be a prolonged affair, but the fear among most is that commodity prices will sky-rocket in the long run. Analysts believe that such a crisis may shift investor focus from equities to other avenues like gold or real estate that are better at hedging against inflation.
So, the million-dollar question among most is whether it makes sense to invest in gold in current scenarios? Investors can read below our expert-curated analysis on gold as an investment in current circumstances.
How has gold performed in recent times?
As the news of the possibility of Russia’s war over Ukraine made waves, gold prices experienced stagnation before slightly dropping from an eight-month high. Despite the subsequent price surge, the precious metal prices are still far from the 2020 range, which was an all-time high.
Various investment studies suggest that gold is one of the best-performing investment classes thus far. This, despite its underperformance as compared to other riskier assets. On most stock exchanges, the precious metal prices have risen over 4% against a 2-5% drop in most major global stock indexes. (source for stats – https://www.business-standard.com/podcast/finance/ukraine-russia-war-should-you-increase-exposure-to-gold-real-estate-122030100089_1.html)
Is gold a good long-term investment?
Gold value generally moves in the opposite direction as the stock market moves. Thus, during inflation, gold is a safe investment option since it retains its value much better as compared to currency-backed assets that could rise in price but experience a drop in their value.
Gold has stood the test of time and what better way to measure its attraction or demand than to look at its price-rise consistency. Even today, Indian investors prefer gold investment due to the belief that it is one of the safest investment options. Technical investors prefer gold, as it can easily recover its value during market downturns.
What are the benefits of investing in gold?
Here are some of the benefits that investors can fetch from gold investments:
- Liquidity – One of the primary benefits of a gold asset is that it offers far better liquidity when compared to other assets, like real estate. Gold can be easily monetized when needed. Investors can either do a direct sale or even borrow a loan against it.
- Long-term financial planning – Gold investment can benefit individual investors who want to set aside funds for future purposes like weddings or gifts, etc. Many jewellers also offer various online gold investment programs that allow investors to set aside some funds in the form of gold for future needs.
- Hedge against inflation – Gold can act as a hedge against inflation since it has a negative correlation to the stock market and economic movements. Investors can therefore use gold as a defence against price rises.
- Shield – If a world warlike scenario arises, gold can absorb the shock faced in equity and other asset markets.
How to invest in gold?
Gold investment is no longer restricted to buying physical gold, as there are many other gold-based investment avenues available in the market.
Those who are looking to safely invest in gold can explore gold futures contracts, the stocks of gold mining companies and also gold-focused exchange-traded funds (ETFs), etc. By investing in a gold-backed ETF, an investor is essentially buying stocks of a trust that holds physical gold. There is also the option of investing in Digital Gold, which offers exposure to gold prices without the hassle of owning physical gold and the ability to easily convert it to physical gold.
What should investors know before investing in gold?
Investing in gold cannot be weighed against investing in equities or bonds. Gold investment should be viewed as part of an overall investment portfolio. Whether it is buying physical gold or investing in gold-related securities, an investor must carefully consider the pros and cons alongside personal financial goals before making a decision.
While buying physical gold, investors must ensure to approach a trusted vendor. Also, investors should not invest in gold with the notion that gold can never lose its value. Just like any other asset class, gold is also subject to various supply and demand factors that impact its price and cause fluctuations.
An ideal way to invest in gold is to keep the investment to a small percentage of the overall investment portfolio. Since it primarily acts as a safety net, if the value of one’s investments comes down, the value of gold may rise and one can be safe from complete losses. However, nothing is guaranteed even in gold prices. Therefore, investors must act with caution even when dealing in this precious metal.
Gold is considered as an emotion more than an investment in the Indian investment scenario. However, as tough times continue across the world, it is best for investors to think practically and use gold as a hedge for future scenarios. Just like equity or debt or other investment instruments, gold must be viewed as part of an investment portfolio to get positive returns.
Since gold prices are volatile, gold investments may or may not fetch better returns than equity. It depends on various factors, including macro-economic changes like geo-political scenarios.
It is difficult to predict if gold prices will go down. The price movements in gold are inversely related to stock market conditions and economic scenarios. Therefore, if stock markets turn downward, the chances of gold prices rising are higher.
Some of the new-age and better ways of investing in gold are Gold ETFs and investing in digital gold. These offer exposure to gold prices while avoiding the maintenance of physical gold.
Yes, physical gold is costlier than most other gold investment forms since it involves safe storage expenses along with the risk of loss due to theft or misplacement.
Yes, digital gold is considered safe since it is stored digitally through secure online mechanisms. It does not involve the risk of theft, which is generally the case with physical gold.