- Prathamesh Mallya
The love of India for gold has not been a secret to anyone. From ancient traders who exchanged spices for gold to the modern Indians who purchase it for their Grand Indian Weddings, gold is something that is deep-rooted in our society and culture. Well, there is a reason why people used to call India a ‘Golden Bird’.
However, gold is also increasingly being used by Indians as an investment instrument. After all, it is a hedge against inflation and currency debasement. So, with Union Budget 2021 right around the corner, let’s analyze gold from an investment viewpoint.
To begin with, there is no right or wrong time to invest in gold. Gold is a part of all investor portfolios. Itis used for diversification and rebalancing purposes. And, it is also a lucrative commodity. Since 2005, gold has extended more than 7-time returns. On the other hand, benchmark indices such as BSE Sensex have extended about 5-time returns. In 2020 itself, gold gave a return of 25%.
Gold specifically holds its significance during periods of economic uncertainty. In general, a weightage of 10% is given to gold as an investor thumb rule. However, during economic volatility, this weightage is generally increased to 15% or more depending on the investor’s discretion. Investors also enjoy superior options when it comes to gold as they can buy it both physically and digitally. One of the best available digital alternatives is the Government of India’s Sovereign Gold Bond scheme. In it, risk and cost of storage are eliminated while also exempting investors from Long-term Capital Gains tax.
At present, uncertainty still prevails in the market due to to socioeconomic factors across the globe, especially in U.S. and Europe. The resurgence of the COVID-19 pandemic can weigh on the market dynamics, thereby making gold the go-to option for investors. A few estimates suggest that gold can provide a double-digit return in 2021 as well. However, if you’re planning to increase the weightage of gold in your portfolio, think again!
What other alternatives can investors consider?
The yellow metal surely comes at a price. That price right now is upwards of 50,000 for 10 grams. In this case, investors can also consider purchasing silver, which currently costs about Rs. 66,000 per KG. As a matter of fact, while gold had extended a return of about 25% last year, silver gave a return of about 50%. So, silver also turns out to be more rewarding for investors.
A point that needs to be noted over here is that silver does not give you many options from an investment standpoint. You can only buy it physically. Its procurement and storage need to be kept in mind.
In conclusion, you must surely increase your weightage for precious metals given wide-ranging economic factors that are at play as of now. It will insulate your portfolio from a tumultuous market. At the same time, you can enjoy superior returns by investing in them. Remember, gold has its own lure owing to the pride factor that it carries for Indians. However, you are not investing for pride. You are investing for returns. So, go with silver if possible!
(Writer is a AVP – Research, Commodities and Currencies of Angel Broking Ltd)