Since time immemorial, gold has been considered a safe investment option, and in these prevailing times of a global warlike situation and an equally devastating pandemic, a lot of investors are considering whether to switch to gold from equities.
Experts say gold should be an integral part of your investment portfolio. The primary reasons are the relative safety they offer, along with their inflation-beating capacity and returns. They suggest investing in gold through gold exchange-traded funds (gold ETFs) or sovereign gold bonds, or a combination of both.
Rahul Kalantri, vice president, commodities, Mehta Equities, a brokerage firm, says, "We advise that based on the risk appetite, the investor should balance and restructure his portfolio according to the geopolitical situation. In the current state of action, risk-takers should allocate a major portion to equities and the rest to gold instruments, while conservative, risk-averse investors can have a major portion in gold to be on the safer side. Overall, we believe, going forward, these markets will remain in the trading zone. The movement of gold will fluctuate based on the Fed Reserve interest rate play, and traders should keep a close eye on this. "
However, one should not over-allocate to any asset. Typically, experts suggest keeping 7-10 per cent of the portfolio in gold.
Here are three reasons why gold is attracting investors:
Geopolitical risks: The pandemic and global conflicts, such as the Russia-Ukraine War, have made the socio-political situation quite volatile across the world. The dollar is also weak now. There is an overall crisis of confidence all across the board. At a time like this, investors are looking for something safe and secure. This makes gold a very lucrative investment option.
Adds Kalantri, "Gold has always been seen as a hedging instrument in situations such as these. If you see, in the wake of the COVID-19 pandemic too, gold prices witnessed a sudden spike. So in any geopolitical tensions, gold always stands as a safe haven for all kinds of investors. "
Sticky inflation and a weak rupee: There is an expectation of sticky inflation and rupee weakness against the dollar. Though gold prices have spiked in the recent past, they might not continue moving up. Thus, this might be a good time to leverage and make an entry as an investor. As the war settles, the world could enter into a recession and gold may outperform all other assets.
Volatile stocks: If you are worried about volatility in the stock market, then you may allocate some money to gold but don't exit equities completely.
Anup Bansal, chief investment officer at Scripbox, a wealth management firm, says: "While the equity market was falling, gold reached a new high this March. In times of crisis, gold acts as a safe haven and an inflation hedge." However, maintain your asset allocation and distribute investments in equities and gold as per your risk profile.
