Gold prices touched an all-time high of Rs.76,700 on October 16, 2024. The recent rise in gold prices is driven by various factors, including increased geopolitical tensions. With the war in East Europe and the Middle East intensifying, more and more investors are choosing gold as a secure investment. Adding to this, the upcoming festive and wedding season has also contributed to the demand for gold. Festivals like Diwali and Dhanteras are considered auspicious for buying gold which has conventionally been a part of weddings in India. However, the precious metal is also considered a secure investment, especially when markets are volatile. Currently, gold prices in major cities like Mumbai and Delhi are trending around Rs.7,150 per gram for 22k gold.
So, is this the right time to invest in gold? Let’s find out some factors that can help you decide just that.
Market trends and pricing
Gold prices tend to rise during the festive and wedding season due to high demand. The precious metal is traditionally seen as a dependable safeguard against market volatility and provides stability to your portfolio during uncertain times. In India, gold has conventionally been valued as a gift and an investment for several reasons. Gold acts as a hedge against inflation, with its price being influenced by inflation rates. Generally, gold’s value increases when the cost of living goes up. As inflation rises, the currency’s value declines, prompting people to store their wealth in the form of gold. Moreover, various factors such as changes in the US dollar rate and global economic conditions, also influence gold prices. So, if you’re planning to invest in gold, keeping track of these trends is essential.
Economic uncertainty and gold’s stability
Gold is frequently considered a secure asset during times of economic uncertainty. With global tensions leading to market fluctuations, investing in gold can provide a hedge against inflation. Before investing, assess if the current gold price aligns with your investment goals and risk tolerance.
Purity and certification
When buying gold, especially jewellery, understanding its purity is essential. Gold is measured in karats, with 24 karat gold being 99.9% pure, and 22 karat gold being 92% pure. However, 24 karat gold is not used for delicate or fine jewellery. Instead, jewellers use either 14, 18 or 22 karat gold. A hallmark is a certification of gold’s purity, and it’s advisable to purchase hallmarked jewellery, as these items are tested by authorized agencies. In India, BIS Hallmark is the certification you should check for to ensure authenticity. This is especially important during the festive season when verifying the certification can help safeguard your gold investment.
Investment type: Physical gold vs digital gold
There are various avenues to invest in gold, such as physical gold, Gold ETFs, Sovereign Gold Bonds (SGB), and gold mutual funds. Digital gold investments like Gold ETFs, SGBs, and gold mutual funds offer easy liquidity, cost-effectiveness, and convenience. Physical gold like jewellery and coins, on the other hand, involves making charges and is at risk of theft. Before investing, weigh the pros and cons of both options to choose one that aligns with your financial goals.
Long-term vs. short-term goal
Gold is typically a long-term wealth-building asset. If you’re chasing quick gains, gold may not be ideal as its prices can fluctuate based on various factors. But, if you’re investing for the long term, gold’s historical stability makes it a reliable choice for wealth preservation.
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Things to keep in mind
When it comes to gold, short-term gains may be more prone to market volatility compared to long-term gains.
Therefore, a staggered purchase strategy, wherein you buy smaller amounts over a period of time, would be advised.
This will help mitigate the impact of price fluctuations, and allow you to purchase at a balanced price. However, limit your investment in gold to 5-10% of your overall portfolio and diversify your investments to benefit from opportunities offered by other asset classes.
The writer, Adhil Shetty is a CEO of BankBazaar.com