Gold is a dynamic asset class with several price determinants. These price movers might include central bank interest rates, global inflation, Treasury yields, US dollar movement, global conflicts, and so on. During times of uncertainty, investors all over the world often rush to the apparent safety of gold, as risk assets (such as equities) experience declines. Furthermore, several major central banks across the world are buying gold to diversify their reserves away from US dollars, as fears about the US government’s soaring debt levels (which have surpassed $33 trillion) escalate.
Whilst the Indian economy appears to be doing well, it remains susceptible to foreign shocks. As a result, gold may serve as a useful portfolio diversifier, protecting investors against uncertainty in risk assets, as it did during the equities market shocks of 2000, 2008, and 2020. Another incentive to retain gold is that the Indian rupee has been steadily depreciating against the dollar. According to studies, allocating 10-15% of a portfolio to gold can reduce risk while maintaining return prospects.
While most investors appreciate the significance of gold, they undervalue the investment vehicle through which they decide to invest. Physical gold, which has long been a popular investment option in India, raises worries about purity. Furthermore, when it comes to physical gold, excessive jewellery store price hikes, making costs, storage expenses, and reduced value when sold decrease investor profits.
The rising digital marketplace and ordinary investors’ understanding of financial instruments are driving up interest in financial gold channels such as gold exchange traded funds (ETFs), gold index funds, and sovereign gold bonds. Gold ETF units, which are supported by gold of the highest purity, can be traded on the stock exchange like stocks, giving investors an opportunity to make gold investments without the difficulties of holding physical gold, as well as the freedom and availability to purchase or sell them at market prices whenever they want during the market hours. The RBI issues sovereign gold bonds, which are government securities valued in grams of gold and deemed secure. These gold investment choices act as a replacement for physical gold.
