Gold has a deep-rooted significance in Indian history. People in the country are used to buying gold on auspicious occasions like festivals, marriage, child-birth, etc. Gold has extraordinary power which attracts Indians at a different level.
As a metal, it is highly liquid and portable as an asset. It is considered as a friend in need, and it can be converted to cash anytime when an emergency arises. Majority of the Indian population survives on meagre resources, but despite this, they found ways to buy gold and make it an integral part of their lives, irrespective its price. Gold has takers across the length and breadth in our country. Hence, the phrase “Gold is Forever” can be used aptly for the Indian market.
According to the Hindu Calendar, Akshaya Tritiya is a very auspicious occasion for new beginnings. Hence, buying gold is also a popular activity in India, as gold symbolises wealth and prosperity. During this lockdown, buying gold seems more important than ever as the pandemic is gripping the economy, and a recession might be around the corner.
With jewellery shops shut across the country, buying physical Gold in the form of gold coins and bars is nearly impossible. But, this obstacle should not dampen our spirits and our gold-buying tradition during this auspicious occasion. There are other avenues through which we can invest in the metal. We have listed a few of them below:
1. Gold Exchange Traded Funds (ETFs): These are funds which primarily invest in gold and can be bought and sold on the exchange. Gold ETFs are basically, open-ended mutual fund schemes. Gold ETFs over the years have proved to be worthier than physical gold, since gold ETFs not only ensure your investment in the yellow metal but also provide the flexibility, liquidity and tax efficiency that come with stock investments. Transparency in pricing is another advantage.
2. Sovereign Gold Bonds (SGBs): The government issues them, and the availability is not ‘on-tap basis’. Instead, the government will intermittently open a window for the fresh sale of SGBs to investors. Even though the tenure of the SGBs is eight years, the lock-in will be for five years. From the fifth year, the exit option can be exercised on the interest payment date. If you are investing in SGBs for meeting a specific goal, make sure the target is at least five years away.
3. Digital Gold: Indians now can purchase gold coins, bars and jewellery online. ‘Digital Gold’, is offered on the mobile wallet platform like Paytm, PhonePe, etc.
During uncertain times like we are facing right now, gold can be seen as one of an essential strategic asset class which shields your portfolio during global uncertainty and inflation. Most importantly, it serves as a diversifier. In 2019, gold prices surged almost 20 percent in dollar terms. If 2019 ended well for the metal, then 2020 has started even better. This week, gold prices hit their highest level in seven years, climbing to around $1,700 ounce. The uncertain impact of COVID-19 on the global economy led to a sharp fall in equity markets, commodity markets along with depreciating currencies leading investors to scout for the relatively stable asset class.
A relatively safe-haven asset like US treasuries has already rallied significantly. Simultaneously, with low bond yields elsewhere, expected returns from bond markets has reduced considerably. With major global central bankers have already lowered interest rates significantly, the further scope for a reduction is either not there or very limited. This limit expected bond returns, going forward. Hence, gold may become an attractive and more effective asset, resulting in a higher portfolio allocation.
Gold backed ETF holdings reach new highs:
Source: World Gold Council
Global gold-backed ETFs (gold ETFs) witnessed net inflows of $23 billion or 298 tonnes in January-March 2020 quarter taking holdings to a new all-time high of 3,185 tonnes. Assets under management (AUM) rose to a record high at $157 billion at the end of February 2020.
We believe every earning individual’s portfolio should have at least a 5-10 percent allocation towards gold. Allocation to gold is more a tactical one wherein the weightage should further increase in case of any uncertainties to the economy.
The author is Executive Vice President at YES Securities.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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