Is this the right time to invest in Gold?

Last Updated: Tue, Oct 30, 2018 15:46 hrs
Gold (Image Courtesy: PTI)

Not all active investors in stocks would look for alternate investment avenues even when markets across the globe keep sliding lower and lower due to concerns about slowing growth and falling corporate earnings. They may still like to believe bad days would be over soon and stocks would bottom out in a flash and move north.

Yes, as we have seen many times in the past, bad times do not stay on forever and are bound to end sooner or later. But that doesn't mean one should sit on their stock portfolios irrespective of some visible black days that might result in a substantial portion of the assets getting wiped off.

So, a prudent thing to do under such circumstances is to look for alternate investments. This could be in gold – physical, futures, or through ETFs – or just plain debt instruments. While investments in gold can give significant returns, some element of risk is also associated there.

Fixed income instruments are risk free, although the returns, obviously, are not any big.

Now, with regard to gold, even those with no significant income or surplus, find themselves attracted to the glitter of the yellow metal. This is among the most important factors that contribute to the ever- shining status of gold and it is more so in India. The glittering metal is much sought after in the country as it is more a status symbol than an investment option.

The rush for the safe haven of gold normally occurs when global equity markets take a hit, due to one reason or the other, and the duration the bullion enjoys that status normally ends, albeit temporarily, when stocks begin to rebound.

The global financial crisis in 2008 readily comes to mind. The rout in capital markets resulted in investors across the globe turn to gold, believing it to be a safe investment option at times of financial market turbulence. Although people were investing in gold even earlier, it was considered more a 'hedge' against equities, and the tag of 'safe haven investment' began to sound appropriate only after that recession.

Since the recession in 2008, gold is being considered both a hedge and safe haven in European and U.S. markets. Asian markets generally follow suit, but to a slightly lesser extent.

Although, gold prices are quite volatile and are not seen climbing any steeply during big setbacks in equity markets, some upside will certainly be there for the bullion in extremely tough stock market conditions.

At times, the bullion's volatility is on par with the turbulence in stock markets. Now, with the U.S. Federal Reserve hinting at a rate hike in December and three more increases in the coming year, the dollar has been moving higher, at times pushing gold to the second spot in the safe haven investments list.

Amid escalating trade war tensions, the U.S. economy may also see a slowdown of sorts and this could prompt the Federal Reserve to go slow on its tightening exercise.

Falling crude oil prices may raise fears of deflation across major economies and this scenario does not augur well for the yellow metal.

Still, as far as India is concerned, people with relatively less appetite for riskier assets such as stocks, may prefer to buy some gold and hold it rather than holding stocks that are losing sheen ever so rapidly amid concerns about falling corporate earnings and the overall liquidity position in the economy.

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