The yellow glow of gold has made many investors’ portfolios glow due to the metal’s steadily rising prices. Not everyone is willing to buy physical gold, which is why many people invest in either gold exchange traded funds, gold funds, or gold exchange traded funds. gold. Sovereign Gold Bonds (SGB).
An assessment of SGB returns reveals that SGB investors have returned more than 13 percent over the past eight years. The appreciation in gold prices is attributed to economic uncertainty, first due to the pandemic and then to ongoing geopolitical tensions.
The lure of gold has enchanted even the country’s central bank as the Reserve Bank of India (RBI) has been looking for gold for several months. In March this year, the RBI purchased 10 tonnes of gold. The central bank has shared its intention to diversify and increase its reserves amid global tensions leading to inflation fears and continued currency devaluation.
Should you buy gold now?
With gold prices rising, many investors are wondering whether they should now focus on investing in gold instead of stocks. Add to that market volatility which is now prompting many people to shift their investments towards gold bonds, bullion, ETFs, etc.
A tête-à-tête with personal financial experts revealed their perspectives regarding gold investments and to what extent one should spend their income on gold investments for better returns.
Basavaraj Tonagatti, a Certified Financial Planner and SEBI Registered Investment Advisor said: “Rather than increasing your exposure to gold simply because of the rising gold price, I strongly advise you to first review your portfolio’s asset allocation into stocks, debt and gold. Based on this, you need to decide whether to expose to gold or not. Also keep in mind that gold has almost the same volatility as stocks. Therefore, even if there is a negative correlation between stocks and gold, only increase your gold exposure if you can tolerate gold’s volatility.
The age-old adage “Be afraid when others are greedy” applies to gold as much as it does to stocks. Buying gold when its price rises may not help. The trick is to wait for prices to cool down and then allocate your gains there based on how important you are to investing in gold.
D Muthukrishnan, a Certified Financial Planner based in Chennai, explained: “It is not wise to increase the allocation when the price of an asset increases. One can devote 10 percent of one’s wealth to gold. When prices rise, there is nothing he can do. When prices fall and the allocation falls below 10 percent, that is the time to increase the allocation and bring it back to 10 percent.
“For Indian investors, gold provides a good macroeconomic and monetary hedge and should be used as such. A 15 to 25 percent allocation to gold based on risk preferences provides diversification away from tail risk. However, there is no evidence that momentum investing, i.e. buying gold when the price rises, helps investors achieve better results in terms of gold prices,” said Gaurav Rastogi, founder and CEO, Kuvera.fr.
Neil Bahal, Founder and CEO, Negen Capital doesn’t seem very enthusiastic about putting money into gold. Bahal explained: “Gold produces nothing. It’s just a hedge against inflation. Unlike stocks or bonds, gold does not generate income or gains. When you invest in stocks, you are investing in companies that produce goods or services, generating profits and potentially paying dividends. So, investors who want to protect themselves against inflation can buy gold in India. Personally, I would prefer to invest in asset production in a diversified manner.
In India, many investors are enthusiastic about investing in gold. A certain amount of investment in gold can help mitigate the volatility inherent in the stock market. However, how much gold you should buy and in what form depends on the return you expect from your investment, in addition to its tax benefits.
Gold has performed well over the past 3, 5, 10 and 20 years, despite the good performance of risk assets.