Investors are putting money out of risky asset classes into safer options. That means, money from shares is going into assets like government bonds and gold. The corona epidemic has caused uncertainty around the world. In such situations, this trend is often seen. In India, people have traditionally been investing in gold.
Gold prices are priced at Rs 43,000-47,000 per ten grams. This year (2020) it has climbed 16 percent. The question arises, should it be invested now? Would it be safe to do so? What is the fair price and how far can it go? What is the right way to invest in gold in the present situation?
Should you invest in gold?
If you are a long-term investor and want to raise money in the long term, the current price fluctuations should not affect your decision. According to research by Oxford Economics, gold does well during the period of inflation. Deflection is the time when interest rates are low, not consumed and the economy is under pressure.
We have seen that gold performed very brilliantly even during the dotcom bubble in 2000. It reiterated the same performance even during the global recession in 2008. The conditions created by the epidemic are more severe than in previous financial crises. Dalal Street has not spared anyone in it. The fall in crude oil prices has put fuel in the fire. We have also seen negative pricing of crude oil which has never happened before.
We also know that gold and equity have a correlation. Global rating agencies and the International Monetary Fund (IMF) have slashed global GDP projections. It will adversely affect the shares. To save their portfolios, institutional investors will shift their investments from equity to gold and bonds. These things clearly reveal that the demand for gold will increase in the coming days.
Since 1973, gold has delivered an average return of 14.10 percent. This is revealed by the World Gold Council report. The rupee is continuously declining. It reached the lowest level on April 21. Economists say it will see further declines in the coming days. The reason is that the corona epidemic will affect the government’s fiscal deficit target.
Many gold mines in the world have temporarily stopped their businesses due to epidemics. This may lead to a spurt in gold prices. Gold returned 25 percent in the calendar year ended December 2019. Then there was no danger of corona. Gold has already returned 16 percent in the current year. Now that the Covid-19 is spreading rapidly, it could put pressure on equities in the coming days. This will further boost gold prices. Overall, gold prices are likely to rise in the coming days.
What is the right way to invest?
Gold is the best way to invest in gold through ETFs or gold sovereign bonds in the current situation. Under the Gold Sovereign Bond, investors have regular income as interest. In addition, the price rise of bonds also benefits them. In addition, if the gold sovereign bond is kept up to maturity, the capital gains from its sale are exempted from income tax. If it is sold before maturity, the capital games with index benefits are taxed.
Low demand due to rising gold prices may lead to some liquidity issues in the physical gold market. Hence, ETFs and sovereign bonds are good options. Their stock can be purchased on the exchange.
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