Let There Be Glitter! Why Dhanteras is a Good Time to Invest in Gold

It’s that time of the year again — when all that glitters is gold. Yes, the festive season is here, and around Dhanteras, the demand for the precious yellow metal usually sees a rise. This day is considered auspicious to buy gold, but ever since the pandemic struck, we’ve become more cautious about our financial decisions. Is investing in gold still a good idea? Should we take the plunge yet again this festive season? The answer is a big YES.

Although the price of gold is high, it is important to understand that historically, it has proven to be a good hedge against weakened currency and inflation. This makes it a particularly safe investment, more so when we are living in uncertain times.

The love affair with gold

Gold has always been considered a lucrative investment. There’s no denying that price fluctuations occur in the short term, but their relevance, in the long run, is what matters. Investors all over the world consider gold as a bankable alternative to traditional stocks and bonds, owing to the advantage of risk-adjusted returns and portfolio diversification.

Previously, people stored gold in their homes, but they were hardly viewed as a mainstream asset. Things look different today, with global demand for gold has increased by 15 per cent between 2001 to 2020, and the average gold price has increased six times during this period. Security is the need of the hour now more than ever, which is why investors are slowly and steadily realising that just relying on stocks and bonds is not enough. Last year, after the equity market crashed, it was gold that witnessed a spike. On August 7, 2020, gold price scaled to ​​a record high of ₹55,922 per 10 gram; after inclusion for 3 per cent GST, the price crossed₹57,000. As of October 29, 2021, the price was ₹47,794 per 10 gram.

Moreover, gold is highly liquid, which is a huge assurance for investors that it can help them tide over troubled times.

What are some of the advantages of investing in gold?

  • Beats inflation: Let’s take a look at the last two decades — we’ve witnessed everything from the recession to the pandemic. What’s interesting to note is that gold has almost always performed well in high inflation scenarios, and has stood its ground even in times of deflation. There have been multiple instances, where gold has outperformed other asset classes.
  • Low interest rates: Did you know gold as a commodity is sensitive to interest rates? Last year, we saw several investments in gold on the back of consistently low interest rates and constant fluctuations in dollar prices. At that point, there were record inflows in gold ETFs (exchange-traded funds). In 2020, a whopping ₹6657 crore was infused in gold ETFs by investors. This was a 400 times surge from 2019, which saw a net flow of only ₹16 crore.
  • Favourable as a long-term investment: We’ve already established that gold is considered a secure asset, especially under situations of economic duress. It is during these times that the demand for gold rises and causes a spike in prices. When it comes to average returns, gold is at par with other financial assets, especially if you view its performance over the past decade. It could be affected in the short term by interest rates, a change in monetary policies, or fluctuations in dollar prices, but in the long term, it is definitely a good investment.
  • Liquidity: The global gold market is huge and highly liquid. Unlike earlier, liquidity is no longer a concern, when it comes to gold. Yes, physical gold does take some time, but gold ETFs and digital gold can be liquidated instantly. Plus, you do not have to worry about storage.

What are some new-age ways to invest in gold?
Those days of just relying on physical gold are gone because investors can now explore new-age options like gold ETFs and digital gold. When it comes to digital gold, it has become increasingly popular during the pandemic, since many buyers are still reluctant to venture out and make purchases at a store. Moreover, millennials and Gen Z are digital natives, and this approach suits their buying habits best. This not only offers you comfort but also speed and transparency.

Due to its added convenience and liquidity, digital gold is also a good option for gifting this festive season. Plus, there are no concerns about storage, transport, or any other additional charges. Even if you are gifted digital gold, you have the opportunity to sell it at market rates.

The other reliable option is gold ETFs, which are exchange-traded funds that invest in gold. They are traded in the stock market. According to a leading publication, gold ETFs attracted ₹446 crore in September 2021 and market experts believe that the inflow is only going to increase this month. Moreover, as per data available with the Association of Mutual Funds in India (Amfi), gold ETF inflow had gone up in August 2021 as well.

If you are thinking of investing in gold, there is no better time than Dhanteras. A 2019 research article points out that adding anywhere between two to 10 per cent in gold over the past decade to the average pension fund portfolio resulted in higher risk-adjusted returns. So, don’t hold yourself back and have a happy festive season.

For more detailed and in-depth information on gold, visit www.mygoldguide.com.

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Printable version | Jan 26, 2022 10:33:14 AM | https://www.thehindu.com/brandhub/let-there-be-glitter-why-dhanteras-is-a-good-time-to-invest-in-gold/article37299470.ece

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