Is It Time To Add Gold To Your Portfolio?

Is It Time To Add Gold To Your Portfolio?

Does your investment portfolio have gold in it? If you said no, then Adding gold to your investment portfolio can help diversify and reduce overall risk. As a safe haven asset, gold historically holds its value during uncertain times. With rising gold prices, now may be a good time to consider adding it to your holdings.

Gold prices are soaring faster than the speed of light. With all the uncertainty in the world, many people are now buying the yellow metal. Will the rise in price continue or is this just a phase?

What’s Up With Gold Prices?

At the moment, the price of 1 gram of gold has crossed ₹6,000. The price of yellow metal has been increasing for a while now. According to Gold Price, the price of gold has gone up by around 21% in the past six months as compared to a nearly 10% jump in one year. However, if we look at how gold has performed in the past five years, we can see that the price has increased by around 86%. This makes us ask the question – What happened in the last five years that led to a jump in gold prices?

What’s Driving The Gold Prices?

The one thing you need to understand about gold is that it is viewed as a safe haven asset. When the stock markets are falling and there is chaos in the economy, people flood toward buying gold. Hence, if the stock market is rising or the U.S. dollar is appreciating, people stay away from purchasing gold. 

In the past year, everyone wanted the U.S. dollar because of the aggressive rate hikes by the U.S. Federal Reserve. So, gold prices changed little in the international markets last year. In 2021, spot gold in the key London spot market began at $1829.88 an ounce and jumped to a near-record high of $2069.88 by March 2022 when Russia started military operations in Ukraine.

However, the prices went down after the global central banks began hiking rates aggressively to fight against rising inflation. On the other hand, Indian gold prices hit a new record high in 2022.

What About India’s Gold Prices?

The important question here is, are only the above-mentioned reasons driving the prices of gold in India? Even though Indian gold prices generally depend on foreign benchmarks, domestic demand, fluctuations in the value of the Indian rupee, and government policies can have a major impact on gold prices in India. 

In 2021, the Indian rupee depreciated to an all-time high against the U.S. dollar. On top of that, the Russia-Ukrain war, high crude oil prices, and RBI’s policy measures put pressure on the currency. Since India met its gold demand via imports, a weak currency increased the landed cost of the commodity, leading to a jump in the price.

Also, we know Indians’ craze for wearing gold, so festive and wedding-related demand also led to the rise in gold prices. After not being able to attend any weddings or celebrate any festivals properly due to the pandemic, Indians went all out in 2022 and accumulated a lot of gold jewelry. On top of that, the high-duty structure acted as an impetus for the jump in gold prices. 

Gold That Keeps On Giving

Gold is a gift that keeps on giving because it has risen in value over the past years. In the year 1954, the price of 24 karat per 10 grams was ₹63.25 but now, the price of gold is over ₹62,000. According to MacroTrends, gold prices rose 18.83% in 2019 (before the pandemic) and 24.43% in 2020 (during the pandemic). 

This amount of growth happened during the pandemic when the economy was going through a chaotic phase. As we mentioned above, when the markets are falling and the economy is in turmoil, people turn towards gold as they perceive it as a safe haven asset. So, gold has given high returns in the past, and at times, it has beaten the returns offered by the stock market. 

Looking Ahead…

As said in a note by Emkay Wealth Management, published by Moneycontrol, gold prices may touch record highs driven by safe-haven demand amidst increasing fears of a possible recession in the U.S. Emkay Wealth anticipates Comex gold to hit $2100 in the coming months. The note also said that “There is a feeling among some of the Fed officials that the stress in the banking system (in the US) will only accelerate the arrival of the recessionary conditions earlier than expected. This will also keep gold fairly well supported”.

Until the banking crisis settles down, we could expect gold prices to increase for quite some time. However, if the dollar strengthens and the Federal Reserve continues to increase interest rates in the U.S., the price of gold may decline. The one thing you need to understand here is that gold is a great investment instrument for the long term. It is the perfect investment option if you wish to diversify your portfolio. 

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