Jan 1: Gold is one of the most sought-after commodities in the world, and its price has been on a steady rise since the beginning of the pandemic. In 2024, gold prices are expected to touch a new record high of ₹70,000 per 10 grams in India, and $2,111.40 per ounce in the global markets, according to experts. What are the factors driving this rally, and how can investors take advantage of it?
The main reasons behind the surge in gold prices are:
- Rupee stability: The Indian currency has been appreciating against the US dollar, which makes gold cheaper for domestic buyers. The rupee has gained about 10% against the dollar since March 2020 and is expected to remain stable in 2024.
- Geopolitical tensions: The ongoing conflicts and uncertainties in various regions of the world, such as the Middle East, North Korea, China, and the US, have increased the demand for safe-haven assets like gold. Gold is seen as a hedge against inflation, currency devaluation, and political risks.
- Slowing global economy: The coronavirus pandemic has caused a severe slowdown in the global economy, which has reduced the appetite for riskier assets like stocks and bonds. Gold, on the other hand, has benefited from its status as a store of value and a diversifier in times of crisis.
How to invest in gold?
There are various ways to invest in gold, depending on one’s preference, budget, and risk appetite. Some of the common methods are:
- Physical gold: This is the most traditional and popular way of investing in gold. It involves buying gold coins, bars, or jewelry from a reputed dealer or jeweler. The advantages of physical gold are that it is tangible, liquid, and easy to store. The disadvantages are that it involves high transaction costs, storage fees, purity issues, and theft risks.
- Gold ETFs: These are exchange-traded funds that track the price of gold. They are traded on stock exchanges like any other security and can be bought and sold through a broker or online platform. The advantages of gold ETFs are that they are convenient, transparent, cost-effective, and tax-efficient. The disadvantages are that they do not offer physical delivery of gold, and may have tracking errors or liquidity issues.
- Gold mutual funds: These are mutual funds that invest in gold or gold-related companies, such as miners, refiners, or jewelers. They offer professional management, diversification, and flexibility to investors. The advantages of gold mutual funds are that they can capture the upside potential of gold as well as its related sectors. The disadvantages are that they charge management fees, may have exit loads or lock-in periods, and may not always reflect the exact price movements of gold.
- Gold futures and options: These are derivatives contracts that allow investors to speculate on the future price movements of gold. They are traded on commodity exchanges like the COMEX or MCX and require margin payments and brokerage fees. The advantages of gold futures and options are that they offer leverage, hedging, and arbitrage opportunities to investors. The disadvantages are that they involve high risk, volatility, and complexity.
Which method is best for you?
The answer to this question depends on your investment objective, time horizon, risk tolerance, and capital availability. You should also consider the tax implications, regulatory framework, and market conditions before investing in gold. Here are some general guidelines to help you decide:
- If you want to invest in gold for the long term (more than 5 years) and want to own physical gold as a form of wealth preservation or insurance, you can opt for physical gold such as gold bars or gold ETFs.
- If you want to invest in gold for the medium term (1 to 5 years) and want to benefit from its price appreciation as well as its related sectors, you can opt for gold mutual funds or gold ETFs.
- If you want to invest in gold for the short term (less than 1 year) and want to take advantage of its price fluctuations or hedge against other exposures, you can opt for gold futures or options.
Conclusion
Gold is a valuable asset that can enhance your portfolio performance and protect your wealth in uncertain times. However, investing in gold requires careful research, analysis, and planning. You should understand the pros and cons of each method of investing in gold, and choose the one that suits your needs and goals best.
By
Sujata Muguda
Shreyas WebMedia Solutions