Why Gold should be part of your investment portfolio

Countries and currencies have changed across eras, but gold, for over 6,000 years has proved its worth as “money”, given its liquidity. It is instantly recognised and universally accepted. The yellow metal’s allure is especially big in India, which holds over 22,500 tonnes of gold or “five times the stock in America’s bullion depository at Fort Knox”. An average Indian family has 11% of their wealth parked in gold as compared to 5% in other financial assets.

The covid-19 pandemic has only corroborated the time-immemorial advice about why it’s important to have one’s savings tied to gold, which can act as a rainy-day fund. According to The Economist, “The three largest non-bank financial companies offering gold loans saw their assets jump by 32%, 25% and 61% year on year, respectively, in 2020.”

Indeed gold continues to be the go-to savings vehicle to combat inflation, which at 6.7%, is relatively high. Earlier this month, the Reserve Bank of India’s monetary policy-committee raised interest rates for a third time in a row. It is during these times that gold glitters more than other asset classes as a safety net.

Small wonder that even as India’s currency has fallen to its lowest in four years, India’s demand for gold rose in the quarter-ending June by 43% as compared to the corresponding period last year. The World Gold Council reported that the demand for jewellery, too, rose by 49%, at 140.3 tonnes, as compared to the previous quarter. The economy, too, has bounced back after being battered by the pandemic which helped matters.

It is not just during times of economic uncertainties but also during geopolitical tensions that gold stands atop other assets. It is often referred to as a “crisis commodity”. For instance, in the recent past, when Russia invaded Ukraine, gold prices skyrocketed. Similarly, when the European Union was grappling with Brexit, prices of gold surged.

Hence, from the investment standpoint, among all asset classes, gold stands out. The whole idea of a “diversified portfolio” is to have savings parked in a bunch of non-closely related investment vehicles. Over the years, gold prices have been inversely proportional to the value of say, the stock markets.

For those who are on the fence and still wondering if it might be worth investing in the precious metal, it might be worth remembering just one thing: generally speaking prices of gold are inversely correlated to the value of paper investments like stocks and real interest rates. And even if the gold prices fluctuate in the short term, it has maintained its value over the long term. It might just be a good time to revisit your investment portfolio and start investing.

Moneycontrol journalists were not involved in the creation of the article