IS GOLD A SAFE INVESTMENT DESPITE EXISTING VOLATILITY ACROSS THE GLOBE? BY NAVNEE GULATI @LEXCLIQ

India is popularly known to be one of the biggest consumers of gold worldwide. Gold is undoubtedly one of the favorite investments of all times in India. High inflation beating capacity, and higher liquidity power has made this yellow metal shine strong every time. In 2019-20 gold has given almost 40 percent return and have proved itself as one of leading investments.

2021 has shaken the minds off all investors due to the emergence of this global pandemic which has led to global economic lockdown which has resulted in global downturn. Typically, gold has gained the status of safe heaven in the times uncertainty because it seems less volatile than other investments like stock

There many minds are curious whether is it safe or whether one should invest in gold or not?

 

As Covid 19 has smashed all the sectors of society safe investment options like gold are at high risk & vulnerability. Initially when the pandemic rattled investors ran away but gradually the gap is being filled and the difference is see.

 

According to Prathamesh Mallya, AVP – Research Non-Agri Commodities and Currencies, Angel Broking Ltd. – “gold has already given double digit returns in the first half of 2021and with so much global uncertainty, gold should be a part of an investor’s portfolio, whether it be retail or funds participation”

 

DESPITE OF CRISIS PRICES OF GOLD HAS RISED

Gold has commendably done well in this uncertainty around us. Though the year 2020 have been extremely uncertain from lock to slowdown in the economy. America’s president’s election and trade dispute between USA and China have also accentuated uncertainty. Geo politics risks between India and China is also another driving key for the price rise of gold is the increase in money supply in global economy. Manny investors have stated that infusion of liquidity has led to lower rate on interest in developed economies which have driven investors to consider gold investment.

Globally investors are booming up on gold. According to the report of exchange traded funds, gold have witnessed highest ever holdings in June 2021. As per the latest data published by World Gold Council there is a significant high inflow of gold, ETF stood at 734 tonne valued at $39.5 billion. This is surprisingly higher than then registered annual inflows. According to the monthly data of Association of mutual funds in India, net flows in gold ETFs stood at Rs 2,040 crore in first quarter.

 

Is this good investment option to last longer?

 

Though due to the past records of gold investors are chasing it but prudence in the allocation of gold is very necessary. If we segregate the investment demand for physical gold which includes jewelry and bullion has collapsed due to income loss and high unemployment. It is better to have moderate expectations from the investment in gold. Lately it has also been noticed that a lot of world gold mines have temporarily closed their gates due this ongoing pandemic and crisis which has an impact on the prices of gold, l ow supply and high demand!

 

THE RIGHT WAY TO INVEST-

The most prudent way to currently invest in gold is to go for gold-backed ETF or gold sovereign bonds on Government of India. It will generate regular income in form of interest keeping apart the appreciation value in bond price. The capital gains on sale of gold sovereign bonds held till maturity also are exempted from tax. Also if they are sold before maturity then capital gain is taxable with indexation benefit.

The increase in gold prices will also result in liquidation issue due to lower market demand therefore investments through ETF and sovereign bonds is a safer and better option as these are tradable in stock exchange so thus chances of liquidity issues are less. Moreover there is no TCS or other taxes on purchasing of bonds which are paid in physical purchasing of gold. So ETFs and sovereign gold bonds makes better sense any day.

Gold is usually seen a lender’s last resort during economic uncertainties 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”.

 

CONCLUSION

Analysis of risk factors and other factors shall be done by every investor before any investment. Advise of financial expert and advisor should also be taken in consideration for sound a safe investment. It is always advisable 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.

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