Beginners Guide to Investing in Gold

With the stock markets swinging in the extremes this year due to the economic impact of the pandemic, most investors were prompted to find ways to hedge their portfolios. During this period, one asset started gaining traction Gold. If you have been considering investing in gold but are unsure about how to begin, here is a quick guide to acquaint you with gold investing in India.

Why Should You Consider Investing in Gold?

While people in India have brought gold over for various reasons, usually cultural or religious, it has found appeal as an investment option as well. Here are a few things that work in favor of gold:

1. Long-term store of value 

For centuries, gold has been the best store of value for the long-term (store of value is an asset that maintains its value without depreciating). The fact that it can play the role of money adds to its superiority and its outperformance of the currency value makes it attractive.

2. It will always have value 

Currency is a ‘promise to pay’. Gold, on the other hand, requires no such promise. It is the only financial asset that is not someone else’s liability at the same time. In its 3000+ year history, gold prices have never dropped to zero. Hence, it will always have value and stand strong even if the market collapses.

3. Inflation hedge 

If the inflation rates rise, the value of currency drops. However, over the last five years, despite the rise in inflation rates, gold prices have doubled. In India, where inflation rates tend to exceed interest rates, investing in gold is a hedge against inflation.

4. Liquidity 

One of the most important features of gold investment is liquidity. Gold can be bought and sold in a very short time.

5. No specialized knowledge needed 

When you buy stocks or invest in mutual funds, you need some knowledge of the market and economy to make the right decision. With gold, no such knowledge is needed. It is simple and straightforward making it easy to invest in for all kinds of investors.

6. Helps diversify your investment portfolio 

As an asset class, gold has a low/negative correlation with other asset classes. Hence, it is helpful in diversifying or hedging your investment portfolio against market volatility.

Things to keep in mind before Investing in Gold

• The performance of gold stocks and mutual funds can differ from that of physical gold. The price of gold is determined by a lot of factors including the demand and supply of the commodity, economic conditions of the country, etc. While a company belonging to the gold industry gets directly impacted by the change in gold prices, there are other factors that influence the price of stocks of these companies. Hence, before buying gold stocks or mutual funds, ensure that you research the company or the scheme thoroughly.
• If you are investing in physical gold, then ensure that it is in a place that is safe and secure.
• Gold prices tend to move inversely to the stock markets. However, it is not always true. Hence, it is important to ensure that you have an investment portfolio that is designed to weather all storms.

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