Much like its physical qualities of being resistant to corrosion, the price of gold has also withstood the test of time, and has become the go to investment for those seeking to obtain a degree of protection against the economic turmoil caused by COVID-19.
Despite demand for physical gold decreasing due to the lockdown measures, the price of gold has surged. On 3rd August gold was trading at close to an average of Rs. 54,000 for 10 grams, rising over 25-30% over the last year as investors have flocked to it as a store of value. In May alone, Gold ETFs provided a return of 22% to investors.
Why? As economies flounder under the strain of Covid, and people become more apprehensive about their economic future, they are turning to safer investments, which have little to no chance of losing the entirety of their value. Gold is regarded as one of the safest investments, and is linked to economic turmoil across history, always moving in contrast to other securities with more risk, such as equity. In the 1920s as well as in 2008, when the stock market plummeted, the value of gold went up. Alternatively, when stock markets experienced a positive upward trend in the 1980s and 1990s, gold saw its prices fall. This makes investing in gold an effective hedging strategy for investors, who are looking for long-term investments in which they can store value, with little risk during turbulent times.
Additional Read: Why Have Gold Prices Surged in the Past Year?
Why is gold rallying?
Though stock markets have rallied after the record lows of February and March, falling interest rates, a weakening U.S dollar and tensions around trade, and economic recovery continue to fuel the price of gold. Indeed, Gold prices have been steadily increasing for a while, particularly post the beginning of the US-China trade war in 2018, and rumours of global economic slowdown became more prominent in 2019.
COVID has only further aggravated many of the existing economic and geo-political tensions. As countries seek to tackle the virus through fiscal policy, and slashing interest rates, the yields of government bonds have decreased substantially, making these fairly risk-free investments less appealing to investors, particularly when adjusting for inflation. As massive stimulus cheques continue to be pumped in, many predict a coming inflationary period. Making long-term investments in Gold is widely regarded as a strategy for storing value during such periods, particularly in India.
Furthermore, gold is pegged internationally to the dollar. As the dollar has fallen in value, the strength of other currencies have increased, making gold more affordable and thus increasing demand for the same. When combined with the fact that the supply of gold has remained relatively stable, it is natural to see that the price of gold has soared, with some predicting that it could cross Rs. 60,000 per 10 grams in the coming months.
Additional Read: Why Gold is a Safe Investment Tool in an Economic Crisis
Investing in Gold
There are a number of ways in which one can use this opportunity to invest in gold, even if prices are now becoming prohibitory. While you can purchase physical gold in the form of jewellery, or gold bars and coins, investing in Gold ETFs, Digital Gold and Gold fund of funds are your best options in the current market. Gold ETFs in particular have posted strong returns in the current year, and at the same time given exposure to the commodities, though there are still some expenses related to it.
Gold has proven itself to be a solid contender among investments and investing in gold should be a part of one’s portfolio at all times.
However it is not the only way to secure and grow wealth in these trying times. If you’re looking to invest in gold or other securities as part of your long-term financial plan, TATA Capital’s Wealth Management solutions provide a range of personalized services tailored exactly to your needs. Its team of expert Wealth Managers provide you with customized suggestions and options, allowing you to acquire investments that are best suited to your long term needs and requirements, across a variety of investment options.