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Should I Invest in Gold?

Should you invest in gold at the present time? This is a question that has been plaguing several retail investors in recent times. After a bull run that encompassed 2018 and 2019, prices of gold have been weaker in the second half of 2020 and the trend looks set to continue for the first half of 2021 as well. However, experts recommend that you should still consider gold as a vital component of the portfolio.

Throughout economic slumps, several governments pump in more funds for the financial sector. It has been a time-tested strategy for authorities in order to churn out available funds in tighter situations. However, the efficacy of the strategy has declined in recent years and a bigger stimulus package is now the norm. With the economy anticipated to take more time to fully recover, there should be more stimulus offered by the central bank throughout the world, including both India and the U.S. This should drive prices of gold upwards as per several experts. Switching to online investment platforms that provide online gold investment can also be useful.

Important Factors that Determine Gold Rates

Higher inflation and soaring fiscal deficit are two key factors that will drive gold prices upwards as per reports. With higher inflation as the backdrop, fixed income investors seek higher interest rates in order to safeguard purchasing power likewise. However, low-interest rate regimes are now the order of the day. Rates should stay low for a longer duration. This may lead to low-real or negative rates. Gold may be an enticing option for investments for safeguarding purchasing power in order to hedge against inflation.

The coronavirus pandemic led to several worldwide conflicts being shelved aside. Some of them may again arise with the vaccine heralding a return to normal life. These events include the conflicts between China and India, tensions witnessed in the Middle East and trade wars between China and the U.S. Investors cannot ignore these factors. Uncertainties in geo-political events may lead to investors relying more on gold as a safer investment alternative. One can check out online gold investments or other options likewise. Investors have also witnessed attractive equity gains over several months with a rallying of stock prices.

Overvalued stock markets

Investors have seen substantial gains on equity investments over the last few months with a spike in stock prices. But, still, there is a fear of a possible correction in investors minds now, as valuations are steep. One may find it difficult to invest, as, despite the recent corrections, markets are at high levels. Since there is a history of gold having a negative correlation with equities, it is a good idea to invest some money in gold to balance the downside of the overall portfolio.

Will the Gold Prices Rise?

However, there remain fears of possible corrections which are still plaguing investors in all categories owing to valuations staying steep. You may find it tougher to invest since in spite of corrections recently, markets are still at higher levels. Since gold has a highly negative correlation with equity investments, it is always a great idea for allocating a portion of money towards gold investments in order to contain downsides for the entire portfolio. Gold prices have been fluctuating for quite some time now.

Yet, if the economic situation does not drastically improve, gold prices may get stronger once again. The shaky recovery globally after coronavirus and the low-interest regime may provide favourable headwinds for the attractive yellow metal and its prices as per experts. Gold prices have been pushed sideways for quite a while now. However, depending on the macroeconomic situation, if it rises, then the gold prices may strengthen again. Gold prices may witness higher volatility although they may shift safely to Rs. 60,000 and more for 10 grams in the medium to long term. Investors should take corrections as a valuable opportunity for purchasing gold at a lower price for the future.

Gold cannot always get you higher returns

Gold is not usually advised for earning higher returns. You should time the exit and entry properly which is something that does not happen at all times. You should also set the store by your asset allocation. Invest something around 10% of the overall portfolio in gold or gold-based instruments. You should invest through gold ETFs (exchange-traded funds) and also sovereign gold bonds. It can also be a combination of these two instruments. This should also back your portfolio when markets remain on the edge or stay volatile for intermittent periods. If gold performs as well as you expect, you will get handsome returns thereafter. The expectations are of course about gold matching inflation rates in the near future.


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