New Delhi, Jan 28
Investment in gold is considered a reliable hedge against inflation as the value of money declines when prices of goods are rising, while that of gold increases in the long run, therefore helping to protect the value of a person’s wealth.
Another advantage with gold is that it is a highly liquid asset that can easily be sold in the market to raise money as and when required, unlike real estate.
Buying gold can also help to diversify an investment portfolio and reduce overall financial risk for an individual or family as the price of the precious metal is not directly linked to fluctuations in the prices of other assets like stocks and bonds when markets turn volatile.
However, while the value of gold appreciates in the long run its price does fluctuate in the short term due to several factors:
Fluctuations in global gold prices directly impact the price of gold in the domestic market as India is the second-largest importer of gold in the world next only to China.
Apart from the physical supply, market sentiments in the local markets also tend to take a cue from the global market which adds to the price variations.
Central banks of various countries including the RBI buy gold in large quantities as a component of their overall reserves. They also sell the precious metal to keep a balance which impacts the market price.
The exchange rate of the rupee vis-à-vis the US dollar also impacts the gold price in India. The price of gold tends to dip when the rupee turns stronger and conversely rises when the Indian currency weakens.
Inflation and economic uncertainty lead to an increased demand for gold as it is considered a safe haven investment which pushes up gold prices.
Lower interest rates make gold more attractive to investors compared to bonds and bank FDs and as a result of the increased demand the price of the precious metal goes up.
Conversely, higher interest rates turn these financial assets into a good investment leading to reduced demand for gold and tend to lower prices.
Government policies related to import restrictions and customs duties also affect the price of gold in the Indian market.
Gold prices also normally rise during the festive and wedding seasons as the demand goes up.
Geopolitical uncertainty such as the Israel-Hamas war also tends to impact gold prices.
These factors which affect the prices of gold in the short-term need to be kept in mind in order to invest in the precious metal at the most opportune time to get a good deal.
Currently the price of 24 carat (pure gold) in the Indian market is around Rs 6,200 to Rs 6,500 per gram.
While gold can be bought in the form of bars, coins or jewellery which is now increasingly being hallmarked to ensure its purity, there is also a digital option to buy the precious medal.
These online investments can be made in gold ETFs (Exchange Traded Funds), gold mutual funds, and gold savings schemes offered by banks and financial institutions.
These options have the advantage of owning gold without having to directly taking possession of the precious metal, which saves people the bother of safeguarding their wealth.
Gold ETFs are open-ended mutual fund schemes that invest in physical gold and are traded like regular stocks at stock exchanges. Investors can buy and sell units of gold ETFs, which mention the exact quantity of gold, through a demat account.
Gold Savings Funds are mutual fund schemes that invest in gold ETFs. Instead of directly buying and selling gold ETF units, people can invest in gold savings funds through their mutual fund investment accounts.
Sovereign Gold Bonds (SGBs) are issued by the Government of India. They are denominated in grams of gold and offer an opportunity to invest in gold without physically owning it. SGBs have a fixed tenor and provide an additional interest rate on the invested amount at the time of encashment.
However, it’s important to remember that gold, like any other investment, carries risks. Changes in the global economy, geopolitical events, and government policies can cause prices to fluctuate.
It is, therefore, essential to carry out research and get professional advice before making investments.
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