India is amongst the biggest consumer of gold worldwide. Gold is a favorite investment by all and sundry in India. Not only gold possess inflation-beating capacity, but it has also high liquidity power in all sense which makes this yellow metal strong to shine all the time. There were phases when we saw a good fall in gold prices then the comeback with new highs is no doubt a smash. By giving almost 40 percent returns in the last year, gold has proved itself as a safe-haven in times of economic and geopolitical uncertainties and touched more than Rs. 55,000 levels. But the question arises whether one should invest in gold at these levels or not? Investors are still confused and want to know is this the right time to invest in gold and is gold a safe investment? We discussed with few financial experts about the scenario to bring a better insight regarding gold investment.
Is this the right time to invest in Gold?
Well, financial experts suggest that for someone who wants to invest in gold at current levels (at this peak), must invest in the long-term horizon. But for short term gains, there are a lot of other factors to consider before investing in gold.
According to T Gnanasekar, Director of Commtrendz Research says-“ If one is looking at gold as an asset class to dabble in for short-term gains, then more active management is necessary by understanding all external factors like the dollar, macroeconomy, geopolitics, demand-supply and sentiment.”
Gold is an insurance against uncertainties and will continue to do well in such times. So, anytime is a good time to invest in gold. “However, if one is a long-term player then it is better to just do SIP in gold and keep accumulating the asset in proportion to other assets, like equities and fixed investments, so as to absorb any shocks that might come from them,” adds Gnanasekar.
Senior Market Analyst- Suresh Manchanda says-“Gold has given annual returns of 10 per cent year-on-year, and given the current situation, such as a steady fall in interest rates, rising inflation, only gold is seen as a safe investment. Despite the political conditions at the global level, there is no other option for investment other than gold and silver. But before investing in gold, it is important to keep in mind that one should not invest 100 per cent in gold, but if one has 100 rupees for investment, then 25 rupees should be invested in gold and for a long period. One should invest in gold.”
Sahil Arora, Director and Group Head, Investments, Paisabazaar.com says-- “Gold prices usually have a negative correlation with equities, with gold prices doing well during equity market corrections. Hence, investors should hold at least 5-10% of their investment portfolio in gold-related instruments to reduce the market risk of their overall investment portfolio.”
Gold prices will touch another high. If yes, then till what time one should invest in Gold?
Gold prices have already crossed the all-time highs and comfortably closed above it, signifying much more upside in the coming months. “We expect prices to touch $2350 (MCX: 65,000) in the coming months. The economic impact and huge stimulus package rolled out by governments are bound to result in inflation and gold is an ideal inflation hedge.” also opines Gnanasekar.
The US elections are also on the anvil and till they are over, more market participants are expected to take to the safety of bullion, and we feel till the elections get over in November, this trend should continue. This also coincides with the Diwali festival for us in India.
What an investor should do?
Taking all the above into account, if an investor's horizon is short-term in nature, then they should educate and prepare themselves for any adverse movements and volatility that can be seen in the coming months, by adhering to stop losses and taking profits from time to time. However, if the investor has a long-term mindset (In the Indian markets, mostly an intra-day trade gone wrong becomes a long-term investment) and consciously invests with that goal in mind by regularly buying on all corrective dips, they are bound to get benefited in the longer term, as the trend for gold is expected to be stronger and stronger only going forward.
Bankbazaar.com, Founder & CEO, Adhil Shetty says- “Gold as an investment offers benefits of both risk-reduction and wealth creation. Even if there is no economic crisis or geopolitical tensions, investing in gold can still give decent returns in the long-term.”
Investors having no or inadequate exposure to gold should start investing in gold funds in a staggered manner through the SIP mode, irrespective of the current gold prices.
“If gold prices correct steeply in the near future, then investors can use the asset allocation strategy to top up their gold funds through lump sum investments. This will average their investment cost and help in achieving optimal exposure to gold as an asset class.” orates Arora.
What points one should keep in mind before investing in Gold?
If one is looking at gold as an asset class to dabble in for short-term gains, then more active management is necessary by understanding all external factors like the dollar, macroeconomy, geopolitics, demand-supply and sentiment. However, if one is a long-term player then it is better to just do SIP in gold and keep accumulating the asset in proportion to other assets, like equities and fixed investments, so as to absorb any shocks that might come from them.
Shetty says – “The best way to invest in gold is via sovereign bonds or gold ETFs. The Government of India’s gold bonds are a good option if you are looking to stay invested for 8 years or more. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.”
If one invests in gold via sovereign bonds or gold ETFs, then they must know that these bonds are issued periodically, and their value increases exactly with gold. They also provide an extra interest of 2.5% per year. The gains from the gold bonds are tax-free. This makes it very similar to holding physical gold with a 2.5% a year bonus.
Before investing in gold please ask the investment risk and other factors from your financial expert or advisor. Always try to invest as a SIP in gold. For someone who is getting into gold now at this peak, must keep a long-term horizon in mind and not get disturbed by price corrections and declines that might happen naturally on the back of high prices. There is clearly no right and wrong time, as gold has been on a secular bull run from 2000 onwards with some corrections in between. So, anytime is a good buy in Gold.