Why It Makes Sense to Invest in Gold This Gudi Padwa

As per Hindu mythology, on occasions like Gudi Padwa, Akshaya Tritiya, Diwali etc. purchasing gold is considered auspicious. During these festivals, jewellers witness a surge in gold rate in India leading to an increase in gold sales, as these days coincide with the harvest festival and the new year, both of which represent new beginnings and wealth.

During Gudi Padwa, many individuals love to purchase gold ornaments, jewellery, gold coins, and other gold products. This could be an excellent opportunity to break with tradition and combine it with high returns by investing in gold-related securities rather than coins, bars, or jewellery.

Gold's long-term worth indicates its consistency and appeal across time. It is regarded as one of the safest investments because it quickly recovers its value during downturns, according to investors. Its value varies in the opposite direction of stock market and economic fluctuations on a regular basis. Gold is seen as a safe haven in times of inflation because it retains its value far better than currency-backed assets, which may grow in price but lose value.

Considering the Russia-Ukraine war which has infused panic and fear across financial markets around the world, it's prudent to allocate a portion and invest in gold as an asset class. In uncertain times, one asset class that displays the trait of being a safe haven, a hedge, and a store of value is Gold and it has been the best-performing asset class this year.

The Russia-Ukraine crisis is far from over, and it does not appear to be going away anytime soon. It could, on the contrary, be the start of a new Cold War. If the Ukraine-Russia situation lasts for a long time, commodities will stay elevated for a long time. Clearly, this will have an influence on the domestic inflationary picture, where strong undercurrents already exist due to increased pass-through of higher commodity prices with improving demand for manufactured goods and even services. During the current market turbulence, inflationary fears prompted a rush for safe-haven investments.

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Mr Somasundaram PR, Regional CEO (India) at World Gold Council said, "In a post COVID-19 scenario after 2 years, festive demand during upcoming new years in various parts such as Gudi Padwa, Ugadi and others in April, should drive the market sentiment up. With inflation concerns providing impetus, he said retail demand for gold will remain healthy in this festive season, though spike in prices and volatility driven by geo-political events tend to act as headwinds."

The Economic uncertainty has gripped the world. The consequences of rising geopolitical tensions are already being felt around the world. Sharp selloffs have occurred in equity markets all over the world. Gold as an asset class is set to benefit in the near term as risk-averse investors would increase exposure to it amid pullbacks in risky assets.

According to the World Gold Council, the yellow metal has climbed 14% on average in years with inflation above 3%. This is also influenced by consumer demand for gold and the attitude taken by major central banks on monetary policy. Central banks are accommodating monetary policy - To assist their economies, most central banks have maintained their monetary policy accommodative.

The US Federal Reserve has reduced its bond purchases and stated that interest rates may be hiked in March 2022. Historically, gold has surged during times of high inflation and high debt-to-GDP ratios around the world. This is due to the fact that, unlike financial assets, gold is a tangible asset. It means that gold carries no credit or counterparty risk and is typically backed by these factors.

Investing in gold is not the same as purchasing equities or bonds. According to financial experts, gold should only account for a modest portion of your total assets. This is considered sound advice because it acts as a safety net. If the value of all of your other investments crashes, the value of your gold should rise, allowing you to escape losing everything. However, keep in mind that nothing is guaranteed, so proceed with caution while buying this valuable precious metal.

During the pandemic crisis, both gold demand and price surged. As we enter 2022, investors are still concerned if the present surge will last, because the trend might continue or the price could fall for a long period.

One of the advantages of owning gold as an asset is that it is more liquid than other assets like real estate and may be quickly monetized if needed, either through a direct sale or a loan secured against it. The price of gold, like any other financial asset or investment, is influenced by supply and demand dynamics. Although gold is a safe haven and considered as a wise investment option during volatile markets, it is vital to assess all risks before investing in gold or any gold related securities.

In order to invest safely and securely in gold, consider smart option of a Gold ETF and/or a Gold saving fund, Sovereign Gold Schemes which may serve as a portfolio diversifier. There are Gold-focused exchange-traded funds (ETFs), gold futures contracts, and other traditional Gold-related financial instruments easily accessible.

Investing in Gold ETF and/or a Gold saving fund offers:

• Convenience to invest in gold at prevailing market price without any premiums involved as in case while buying physical gold.

• You don't need to worry about storage, security and quality. Ensures high liquidity, as it can be sold at prevailing market price without probing the quality in the time of need.

• Do note that over the long-term, gold as an asset class has exhibited an uptrend and performed reasonably well highlighting the importance of owning gold as an investment option.

Investors who purchase a gold-backed ETF are purchasing shares in a company that owns gold, but they do not own the gold. You can also invest in Digital Gold, which is in moderation to the traditional gold investment avenues. If you invest in Digital gold, it gives you the best of both worlds - exposure to gold prices without having to hold real gold and the opportunity to convert it back into physical gold as needed.

Therefore, Gold as an asset class proves to be a wise investment option for investors and it makes sense to invest in Gold during this festive season. You may consider allocating a portion of your investment portfolio to gold as an asset class and it will prove to be a safety net amid dynamic market conditions over a long period of time.

Happy Gudi Padwa!

Warm Regards,
Mitali Dhoke
Jr. Research Analyst