Have you been keeping an eye on the gold market lately? Well, if you haven’t, you might be surprised to learn that gold has been on quite the journey, surging by a whopping 20 % in the past year. Let’s dive into why this shiny metal has been shining so bright recently.
Store of Value
Gold has always been the go-to asset when things get rocky in the financial world. During times of uncertainty or fear, like the ongoing conflicts in Russia-Ukraine and the Middle East, investors flock to gold as a safe haven. Even central banks of major emerging markets are piling up gold reserves, seeing it as a reliable asset to weather economic storms. The invasion of Ukraine by Russia in 2022 highlighted the importance of gold reserves, as they remained untouched while other assets were seized or frozen during sanctions.
Impact of Rupee Depreciation
Gold is traded globally in US dollars. But since we buy it in rupees, and the rupee tends to weaken against the dollar over time, the price of gold in rupees goes up.
Anticipation of Rate Cuts
Gold prices typically move inversely to interest rates. When rates are low, gold becomes more attractive because there’s less opportunity cost compared to other investments like fixed deposits. With expectations of rate cuts by the US Federal Reserve, investors have been flocking to gold as a hedge against potential economic uncertainties.
Also Read: RBI Transfers 100 Tonnes of Gold From UK to its Vaults in India: Report
Now, while gold’s recent performance may seem tempting, it’s essential to remember that it’s historically been considered an unproductive asset class. Unlike equities, which have delivered around 14 % returns in the last decade, gold has yielded only 7-8 % annually. However, if you’re keen on adding gold to your portfolio, sovereign gold bonds (SGBs) could be a good option. SGBs offer the same growth potential as physical gold but with added benefits like annual interest and tax-free gains upon maturity.
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Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before investing in market-linked instruments.
