Investment in Gold: An Eternal Safe Harbour

  1. Home
  2. /
  3. Investment in Gold
  4. /
  5. Investment in Gold: An Eternal Safe Harbour
Gold as Investment

Investment in Gold: An Eternal Safe Harbour

Posted in : Investment in Gold on by : Mangatrai

All that Glitters is Always Gold !

It is inevitable to think that an investment in gold amidst an unprecedented global health crisis would seem senseless, especially when people across the globe are hoarding stores to purchase groceries to fulfil basic needs. Here is something that would trigger thoughts otherwise.

Amidst stalled trades and a frenzied economy due to the COVID-19 pandemic, gold has indeed been volatile, more than ever before. However, gold as an investment option has always been a risk-free, safe harbour compared to other classes of assets or stocks. The same stands validated even amongst such times of uncertainty.

It is well precedented that gold apart from being flexible and highly liquid is nothing less than a shield, especially in situations of deflation1 or a financial crisis. Gold as an asset stood profitable even in a crisis like that of the 2008 Global Financial Crises (GFC), which was the most severe recession since the Great Depression or the dotcom bubble era in the 2000s. The current pandemic is much bleaker as compared to the chaotic crisis earlier.

It is not debatable that the diversification of portfolios is an indispensable strategy for any qualified investor. An investment in debt instruments is restrictive in nature as the investor is barred from selling the holdings according to a “lock-in” period. On the other hand, an investment in real estate is precarious due to the need for finding a decent buyer. It indeed seems like there are no assets which are immune to such crisis. Comparatively, an investment in gold is less risky and would not jeopardise one’s savings. In the words of Archit Gupta, the CEO of ClearTax, “It is advisable to allocate about 10-15% of your portfolio towards gold“.

From an investor’s point of view, who focuses on the accumulation of long-term wealth, the current meagre price fluctuations should not affect their decisions to invest in gold. In fact, one should invest as early as they can as economists expect a low supply and high demand in gold2 due to the shut businesses of Gold Mines across the globe.3 Further, an important consideration is that the value of Rupee has been on a continual depreciation path and has been the highest, i.e. INR 77 as on 21st April, 2020, which is good news for the gold prices. The rationale for the same is theunarguable relationship between the currency and the gold rate.4

Performance of Gold During the Pandemic: All required Statistics
The World Gold Council (WGC) expects that financial uncertainty, lower interest rates and weakening in global economic growth will impact gold prices this year. The Covid-19 lockdown has, of course, clogged the activity in gold markets including India. In rupee terms, price per 10 grams of gold corrected by 3.2% in March. Nonetheless it remained over INR 40,000 per 10 grams. During the January to March 2020 quarter, gold gained nearly 5%.

1Deflation is the period where interest rates are low, consumption going down, and there is financial stress in the economy.
2Refer Gold bars in short supply due to coronavirus disruption, Article published on Financial Times Website
3Read more at World’s Deepest Mines to Take Weeks to Reopen After Shutdown,Article published on Bloomberg Website
4Refer How Gold Affects Currencies, Article published on Investopedia Website

2011, after a period of over nine years, gold prices hit a new value of INR 50,000 per 10 grams as of July, 2020.[1]This could mean one thing, its only going to shine brighter.

Why should one Invest in Gold at All? 

  • It has history of holding its value through unprecedented situations
  • Gold rate standswell against the weakened U.S. Dollar
  • Useful as an inflation hedge
  • Useful in deflation situations too
  • Devoid of geopolitical uncertainties
  • Future increaseddemand and less supply
  • Tool for portfolio diversification

What is the Right way to Invest?
Investments in gold have a wide plethora of options in physical products, including jewellery, gold bars, gold coins, etc. Other investments are in the form of Exchange Traded Funds (ETFs), which aren’t as prominent in the domestic Indian market, Gold Accumulation Plans (GAPs), where digital gold is bought through an online platform. Further, other options include Gold Bonds issued by the Government of India, which is not afeasible option due to low liquidity and high tenures.

Investments in Physical forms of Gold
It is awell-establishedprinciple that Indians are highly inclined to purchase gold jewellery. It is backed by the latest report by the World Gold Council (WGC), which states that India is the world’s largest consumer of the yellow metal. In the typical Indian mentality, “If you cannot hold your gold, you don’t own it.”, which stands very true. There is a need to materialize every investment in its best way possible.

In the words of Garance Dore, “Jewellery is a very personal thing, it should tell a story about the person who’s wearing it”. Leading Jewellery brand Nayan Gupta, Managing partner from Mangatrai Neeraj  speaks to us on this .Given the varied diversities and cultures, Indians have their stories, bittersweet ones. Apart from being alogical investment of high monetary value, gold jewellery also acts as conveyor of social status. Gold is considered to be a symbol of prosperity; it is manifested in Indian weddings, where the quantity of gold worn by bride or the bridegroom is a direct reflection of the family’s social status and economic standing.

Beyond that, gold jewellery also has an emotional and sentimental segmentattached to it.A piece of designer art is considered to be a “family heirloom”, which is transmitted from one generation to another, packed withvivid ancestral memories and unique identities. Mostly, being bought by or for women, it also acts as a financial security for unwarranted situations. This is an age-old tradition followed in India. Mangatrai Neeraj, understands the sentiments around this and caters to every customer with finesse as per their requirements.

It is true that due to the pandemic and the unpredictable government notifications, the vogue big fat Indian weddings are now scanty and fragmentary, which is governed by rules established by State Governments. The trends in marriage ceremonies show that the celebrations are now what we call “remoteand niche intimate affairs”, which is the unfortunate new normal. Given the fact that Indian weddings involve enormous expenditures like an elegant venue, high end décor or delicacies, families can now divert such exorbitant amounts into gold investments, which serve many long-term benefits, post pandemic too.

To conclude, gold jewellery, apart from being an investment option,is also a token of family prestige and an indicator of social standing. It exceeds in importance other than any material substance in India.

Tips for Purchase of Gold

  • Prefer purchase of physical gold
  • Prefer purchase of liquid coins and bars
  • Physically store coins in one’s proximity
  • Purchased gold must be under one’s direct and unencumbered ownership
  • Build a portfolio of liquid stocks
  • Always buy using one’s savings; credit should be avoided

5Refer Economic Times Study on Gold Rates – Spot & Futures

It is true that due to the pandemic and the unpredictable government notifications, the vogue big fat Indian weddings are now scanty and fragmentary, which is governed by rules established by State Governments. The trends in marriage ceremonies show that the celebrations are now what we call “remoteand niche intimate affairs”, which is the unfortunate new normal. Given the fact that Indian weddings involve enormous expenditures like an elegant venue, high end décor or delicacies, families can now divert such exorbitant amounts into gold investments, which serve many long-term benefits, post pandemic too.

To conclude, gold jewellery, apart from being an investment option,is also a token of family prestige and an indicator of social standing. It exceeds in importance other than any material substance in India.

Tips for Purchase of Gold

  • Prefer purchase of physical gold
  • Prefer purchase of liquid coins and bars
  • Physically store coins in one’s proximity
  • Purchased gold must be under one’s direct and unencumbered ownership
  • Build a portfolio of liquid stocks
  • Always buy using one’s savings; credit should be avoided

 

Leave a Reply