Is this the right time to invest in gold? Find out

By: |
October 7, 2020 3:34 PM

Some people have become sceptical about investing in gold because they believe that the continuous rise in gold prices is pointing towards some serious risk. What should you do?

Gold is also widely recognized as one of the best hedging tools against inflation.

Gold prices have almost doubled during the last few years, and this upward trend in the prices of gold has made the yellow metal a viable investment instrument — particularly in times of the current pandemic — with various gold avenues available in the market. However, some people have now become sceptical about investing in gold because they believe that the continuous rise in gold prices is pointing towards some serious risk, and therefore it may not be the right time to invest in gold.

Industry experts, however, say that there is no right or wrong time for buying or investing in gold. For, especially in India, people buy gold for a variety of reasons.

For instance, “a majority of people in India buy gold for special occasions like functions, marriages and religious ceremonies. Therefore, the rationale for right or wrong time of buying gold gets nullified,” says Prathamesh Mallya, AVP- Research, Non-Agri Commodities and Currencies, Angel Broking Ltd.

People also purchase gold coins, bars etc for investment purposes. However, experts suggest, all the investments should be averaged/purchased at different prices, in order to benefit from value cost averaging.

Gold is also considered as a safe haven asset. “The situation of easy money policy across the globe, massive amount of liquidity push by central banks, the situation created by the pandemic and the uncertainty across the globe call for investing in safe haven assets and what better than buying gold?” asks Mallya.

Gold is also widely recognized as one of the best hedging tools against inflation. “Having gold in your portfolio can also provide you a cushion against heightened market risks and uncertainties. Moreover, if you are planning to purchase gold for investment, it is surely the correct time to buy it as the world economy has come to a standstill because of the pandemic,” says M Manuvel, Chairman & Managing Director, Manuvel Malabar Jewellers.

It is true that gold prices have recently started tapering off after reaching all-time highs earlier this year, but the fact remains that the prices of the yellow metal have almost doubled in the last 5 years.

“Gold usually exceeds performance expectations whenever there are heightened uncertainties and volatility in the markets, and that’s why it’s unsurprising that the Covid-19 outbreak triggered the peaking of its prices earlier this year. So, it might still be a good time to invest in gold, especially keeping the upcoming festivals in mind, until the world fully recovers from the Covid-19 crisis,” says Adhil Shetty, CEO, BankBazaar.com.

That said, experts say, one can never totally rule out the possibility of a correction or even stagnation in prices in the months and years ahead. This, however, doesn’t alter the fact that one should continue investing in gold, ideally in small quantities throughout the year, to make their overall portfolio robust and well-balanced. This is strictly from the investment perspective and not necessarily from the traditional consumption viewpoint.

However, “in doing so, one should ideally try to limit one’s total gold investments to 5-10% of one’s portfolio’s value as the prices of the coveted yellow metal tend to flat-line over long periods of time despite the occasional upward trends. A portfolio skewed excessively towards any one asset class, including gold, could prove to be insufficient in generating returns that could meet the investor’s financial goals on time,” says Shetty.

Pranjal Kamra, CEO, Finology, also has similar views. “Gold acts as a hedge against market volatility and, thus, it is advisable to invest some portion of your capital in gold in order to diversify your overall portfolio. Over the last 1 year, the prices have surged significantly. Therefore, one cannot expect a very high return from this asset class. But, owing to the economic uncertainty, one should have 5% to 10% exposure in gold,” he says.

Investors, as such, should smartly use their gold investments to diversify their portfolios while not missing out on the glittering investment opportunities that it promises from time to time.

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