Should you invest in gold this Diwali?

Gold is the most valuable commodity that has lasted for centuries. Indian households love gold, not just as an ornament or their everyday jewellery but also as a good investment option. Indian housewives hold close to 11% of the world’s gold which is close to 25,000 tonnes. That’s not all, the Indian market consumes gold in two ways, as jewellery and as an investment. In Q3 of 2019, the Indian market consumed 22.3 tonnes as gold investments and 101.6 tonnes as jewellery. With festivals like Navratri and Diwali bringing more gold into the market - there is always a dilemma as to how much to invest in gold and some in cases which type of gold to invest in?

Let’s first have a small recap and take stock of the current market situation.

Current market scenario

When the first wave of the pandemic hit us in the month of February-March the equity markets crashed leaving many to liquefy their savings and get out of the game. While the market rose back steeply and is back to where it was at the start of the first quarter, people who were stuck with the dilemma have lost a good chunk of their savings since they expected the market to go awry.

While the demand for gold did stoop for the first few months, gold prices kept going up.

Many still have a vague idea of what to do with their present uncertainty lingered with regards to jobs. Many took hefty pay cuts. People held onto the liquid money they had while some even broke their deposits early to survive the current economic conditions. This is where gold investments boomed and saved many from their struggles.

Additional Read: Understanding the relationship between economic downturns and gold

There may have been a lower consumption at the start of the year but as the market revived and local lockdown rules eased up, the demand for gold rose faster than anticipated, since weddings are the biggest gold consumers right now in the country.

What the experts say

Economic revival hinges on flattening of the pandemic curve in the country.  While as it may be, gold prices have been skyrocketing many times since the beginning of this year - standing right now at ₹47,210 for 10g 22 carat and ₹51,400 for 10g of 24 carat (price in Bangalore). With increased demand there is always a push of inflation, bringing the value up and up. 

Yes, the festive season is an auspicious occasion to buy gold in this country. Better yet, with everything going digital this 2020, it might be a good idea to invest in gold digitally too.  Don’t take our word for it, your financial advisor would suggest the same too.  In general, gold usually makes up to 10% - 20% of one’s  investment portfolio. It’s a  rule that most financial advisors would like to follow. While that being said, when it comes to  gold investments it is always a good option to buy them  as pure coins or bars, while jewellery

Still remains everyone’s favourite option. Yes, physical gold gives you an advantage but Gold Mutual funds are even better. Unlike any other funds, Gold Funds are open-ended investments that diverts your funds into gold reserves, giving you solid returns and securing yourself from economic fluctuations.

What are your other golden options?

You can invest in gold securities which are like any other securities investment which  are bought at the stock market. Speaking of stocks, you can buy the stocks of the companies that mine gold. But if you are looking to diversify your investment portfolio, Gold Funds are the way to go.  Gold Prices keep fluctuating but they are bound to go up constantly. So, this festive season you can choose how you celebrate, with solid gold or digital gold.

Additional Read: Different Ways of Investing in Gold and their Uses

Conclusion

A piece of gold jewellery makes a perfect festive gift for your loved ones. But if you are on a solid financial footing, then hedge yourself with Gold Mutual Funds and give your loved ones more in the future. Not only does it become your cushion against the economic downflow but also diversifies your portfolio and generates wealth while at it. It is both easy to liquify and invest too, since you can buy Gold Funds for as low as INR 500. Digital Gold Investments are low risk but they yield better along the road.