Why does investing in gold holds its shine amidst the international uncertainties?
For thousands of years, Indian families have been having their first vote for investing in gold considering it as a safe investment. Gold has stood the test of time and had always had its safe ride over the waves of national as well as international uncertainties such as wars, economic slowdown, scams etc. How and why does this phenomena happen?
Gold prices reached (while failed to hold) its all-time high of Rs 60,450 per 10 grams in India recently. The significant rise in gold prices demonstrates that more and more from the retail investors are turning to gold as a safe bet amidst global economic and political crisis. Also the banking credit crisis was worsened in US and Europe affecting top notch banks such as Credit Suisse in Switzerland.
Whenever there is market turmoil, especially in our financial system and banking sector leading to market volatility, investors seek safe havens for storing and keeping safe the value of their hard earned money. Gold is arguably the most well-known safe haven in the world as it is the best assets available without any counterparty or credit risk. In other words, unlike a banks, the gold cannot disappoint you, which is very appealing point.
Correlation between Stock Market and Gold prices?
It has been proven over the period that gold and equity markets have an inverse correlation. In other words, gold prices go up when markets fall because people tend to move their funds from equity to gold. However, the opposite also stands true.
Gold has recently touched the $2000/oz mark in the international market and lifetime highs of Rs 60,000/10 gms in the Indian markets, and if the global turmoil continues, the upward trend in gold prices should continue further.
Further the interest rate hikes in USA as well as India have seen a pause from last few quarters and the same has pushed the gold prices further. However, there could be higher volatilities seen in gold prices suggesting that the investments in gold should be made with a long term horizon.
5 means of investing in gold:
There could be several ways of investing in gold each having its own pros and cons:
- Physical gold: Physical gold has been a preferred choice of investing in gold in India, especially given the ease of transaction and more importantly the liquidity it provides at corner of the country. Buying gold it a bullion form also helps retain its price without incurring any making charges. However the physicals gold does carry security risks to you as well as the investment.
- Sovereign Gold Bonds: Central banks of the country such as Reserve Bank of India do issue sovereign gold bonds. These bonds provide a safer option to investing in gold in paper form. Sovereign bonds units appreciate its value basis the gold prices as well as they carry a coupon rate over and above the capital gains which makes it a widely accepted means of investing in gold.
- Gold Mutual funds: There are options available in market for investing in gold through thematic mutual funds focusing in gold investment. These investments in gold mutual fund do not necessitate having a demat account and one can purchase the units as per his own capacity without worrying about the minimal investment requirement. Systematic investment plan in such mutual fund units can provide a much safer option of diversifying your portfolio.
- Gold ETFs: Gold ETF, or Exchange Traded Fund, is a commodity-based mutual fund that invests in assets like gold. These exchange-traded funds perform like individual stocks and are traded similarly on the stock exchange. Demat account is necessary to invest in gold ETFs.
- Digital Gold: Digital gold is an alternative to investing in gold in its physical form. One can purchase gold online, and an equivalent amount of that is kept as physical gold in an insured vault. Here one can start with minimum amount and option is available to sell the entire or a fraction of the gold anytime at the prevailing market rates. All these gold are 24K and are certified by the government. It ensures purity and negates the chances of fraud.
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