Gold is a prominent player in the Indian economy. Over the past few years, investment markets have witnessed volatility, but gold has consistently been a stable investment option.
This article will tell you everything you need to know about making an investment in gold.
What's Gold Investment?
Gold investment can be made in various ways. Individuals can purchase gold futures and options to add to their investments in the form of gold funds/ gold ETFs. Individuals can make an investment in gold by purchasing shares in a corporation that mines gold. They can purchase gold directly in the form of coins or bullion.
It is a popular belief that that buying gold jewelry is similar to making an investment in gold but actually, it isn't. Gold rate today depends on various factors. The reason behind that is the cost involved in making jewelry out of gold. Also, jewelry cost includes the making charges which go up to 20 percent of the total price.
What are the Advantages of Gold Investment?
There are various factors that make gold a hot investment option among the investors. Some of the factors are:
- Portfolio Diversification - Investing in gold helps to diversify investment portfolio since it shares an inverse relationship with currency and stock value.
- Liquidity and Universality - Gold's liquidity and universality make it a preferred choice amongst investors all over the globe. When required, it can be exchanged for cash very easily, and is accepted worldwide.
- Stability - Gold's value tends to rise during inflation which makes it a stable investment option as compared to other assets.
- Unaffected by Political Chaos - The gold value across the globe remains untouched by political chaos. Gold's demand may increase or decrease but it doesn't end.
Is making Gold Investment in 2017 is a good idea?
In order to comprehend whether making an investment in gold is a good idea in 2017, take a step back and observe how the gold rate falls or rises.
In simple terms, the gold price is majorly ruled by its demand, supply, and its current investment value. In India, it fluctuates because of government policies along with the various economic events like demonetization.
Chennai comprises up to 30 percent of the overall demand for gold in our country.Today gold rate in Chennai affects the demand for the yellow metal. If the gold price is hiked, the demand will fall.
Investors make an investment in gold when the stock market or economy is weak. Owing to the circumstances, gold will be more valuable as compared to stocks or bonds.
Investment experts recommend the best time to make an investment in gold is when an inflationary period is expected. Pro-investors know when the local currency is strong, inflation is highly unlikely. Although, increased currency printed by the RBI will result in higher cash flow in the economy and it will lead to price rise. That makes it an ideal time to make an investment in gold.
Another way to predict potential gold investment prospects is by analyzing the financial data of the last years. For example- from November 2015 to November 2016, gold ETFs gave return of 16 percent and performed better than the other asset classes. Gold prices in India increased from 25,000 Rupees per 10 grams to 31,000 Rupees per 10 grams during the same time period. This price rise was triggered by a wide range of global components like inflow in bullion funds, a decrease in global equities, and other concerns regarding economic growth and development. In addition to that,since 2013 gold has witnessed a 28 percent fall in its value.
Although, the returns over 3-5 years have been not that good. Investment experts forecasted that gold rates will fall in 2017 before increasing.With the marginal rise in Indian inflation, the gold price is likely to be low for the upcoming 1 to 3 years. The yellow metal may not be a good short-term investment option.The good thing is the long-term prospects which are expected to be brighter.
Factor affecting Gold Investment
In order to decide to make or not to make an investment in gold in 2017, investors must analyze the factors mentioned below in detail.
1. International Concerns
The latest rise in the global bond yields and smooth carry trade is reflected in the gold prices. The new initiatives of the American President towards higher infrastructure expenditure and tax cutting have made the American dollar stronger. Gold and the currency share an inverse relationship, the lower the dollar becomes, the stronger the gold rates will be.
2. Demonetization Impact
Our government imported approx 30 tons of gold worth 1 billion dollars during 7days,after demonetization. The demonetization announcement and the following 2 months were a shock for a majority of investors. Immediately, many jewelers imported gold to refill their stocks. Also, the demand for gold in our country has increased. Following the principle of demand and supply, the gold prices have also increased.
3. Inflationary American and Chinese Policies:
The American president has made plans to cut taxes. As a result, it will add approx 7.2 trillion dollars in the federal debt during the first decade. It will add up to the already outstanding amount of 19 trillion dollars. Apart from that higher fiscal expenditure, tight labor market, increasing wages will lead to higher inflation which will impact the dollar as well as gold.
Coming to Chinese policies, current fiscal and growing housing market have resulted in huge credit creation in China. A rise in housing prices started in April 2015. At that time, Chinese stock prices were at the peak. An identical peak is traced out in the current housing market of China. On the CME (Chicago Mercantile Exchange), the turnover of gold futures has registered a hike of 25 percent.It indicates that the pricing power of this yellow metal is tilting to Chinese hedge funds and traders.
4. Demand in India and China
India and China are the world's 2 largest jewelry markets.In both the countries, the demand for gold jewelry decreased by 41 percent and 27 percent respectively in the third quarter of 2016.
It affected jewelry demand across the globe which sumsup half the annual gold demand. This fall in the demand was because of an assemblage of some factors that won't reoccur in 2017.
The Bottom Line
The best time to invest in gold is now. If you make up your mind to invest in gold, study and analyze the market trends before making any investment decision. It will help you to reap sweet benefits. We hope this article helped you to know about gold investment prospects in 2017.