In the Indian investment landscape, gold has always been an asset that has been highly sought after. Conservative, moderate and risk aggressive investors have all, at various points in their investment journey, relied on gold as an ideal investment to add to their investment portfolio. 2020 was no different, with the demand for the yellow metal continuing to be steady. In fact, with the equity markets showing a downtrend during the early months of 2020, many investors turned to gold to add some much-needed stability to their investment portfolio.
Needless to say, the yellow metal delivered optimal returns in the year gone by, with gains touching around 28%. Gold funds have offered returns to the tune of around 26.84% in the last one year. And looking back at the historical performance of gold these past couple of years, it becomes evident that the price of the metal has appreciated considerably over that period.
Now, as we’ve moved into 2021, many investors may be on the fence about continuing to put their money on gold and gold funds. Is the yellow metal still a viable option for your investment portfolio this year?
Let’s look into the details.
The general prognosis for gold and gold funds
If you’re considering investing in gold in 2021, you will no doubt want to know more about how the price for the asset may pan out this year. Will gold continue to be a good investment option in 2021? The jury is out on that. Some experts opine that with the economy now reviving, investors may turn to other assets. Many experts, however, believe that gold and gold funds still have ample room for further appreciation.
All things considered, most experts echo the sentiment that the overall outlook for gold, ETFs and gold funds appears to be bullish for the new year. If this pans out as expected, the yellow metal could prove to be a healthy addition to your investment portfolio for the third consecutive year. A number of factors could influence the price of the asset this year. Let’s take a look at these influencers.
Additional Read: Different Ways of Investing in Gold and their Uses
What factors could influence the price of the yellow metal going forward?
There are some general elements that could impact the way the market turns out for gold this year. Here are the details.
1. The COVID-19 situation
Many countries across the globe, including India, have started their vaccination drives. This could be good news for the COVID-19 situation, if it weren’t for the newer strains of the virus that bring in a bit of uncertainty. If those new strains turn out to be major concerns, we could see gold appreciating in value. However, if the COVID-19 situation stabilizes more permanently, investors may start to look beyond investing in gold, and consider other avenues of investment for their portfolios.
2. Inflation rates
In a bid to revive the global economy, the printing of money has been increased across the world. Ultimately, this could lead to an increase in the inflation rates. If that comes to pass, investors who have added gold and gold funds to their investment portfolios have reason to rejoice. Inflation has always boded well for people keen on investing in gold. Aside from the inflation induced by the increased printing of money, general and expected inflation could also drive the prices of gold upward.
3. The value of the US dollar
The US Dollar is expected to remain weak mainly on the back of massive money printing, inflation, and loose monetary policy. If the dollar weakens, the price of gold could be driven upward. Conversely, if the dollar strengthens in 2021, the opposite would be true.
4. The global economy
The state of the world economy will also impact the price of gold. With the impact of the pandemic slowly beginning to wear off, the economies of several countries are hinting at recovery. In that case, investors are likely to look beyond investing in gold and other inflation-proof assets, and may perhaps explore other markets. However, the fact remains that gold will continue to be a reliable and stable investment option for investors who wish to balance their portfolios.
Additional Read: Why Gold is a Safe Investment Tool in an Economic Crisis
All in all, the outlook for gold continues to remain positive for 2021. If you are looking for the different ways in which you can go about investing in the yellow metal, there are several alternatives you can consider, such as direct gold, gold funds, gold ETFs and sovereign gold bonds issued by the government of India. Depending on your investor profile, you can choose to add any of these products to your investment portfolio. Take help of experts at Tata Capital Wealth to get started.