Melting stock markets, decreased rate of interest, worried?
Well, gold is your saving grace. The age-old love of Indians to store gold is now all making sense in these unfortunate times.
Gold, although not a very profitable investment in normally, it becomes the best one during a recession. There has been a surge in the gold rates because of numerable factors:
1) With the stock markets crashing all around the world, investing in shares might not be a suitable option due to the prevailing uncertainty. The corporates are struggling to survive, never mind the profits owing to a bleak economic future. So investors are moving to safer havens such as gold.
2) RBI and central banks of most other countries have reduced the interest rate. Thus even bank securities are not a viable option for the time being.
3) The world is experiencing a geopolitical turmoil, with the US and China having stressed relations, and such crises have a negative impact on other assets.
So the cumulative effect of all these factors is an increase in demand for gold, with the supply being stagnant as extraction and mining remain weak because of the lockdown. So as per the general rule of economics, the gold rates are bound to shoot up soon.
However, there is a catch, due to a shortage in revenues and the unexpected health and medical expenditure, there might be a chance wherein central banks of many economies may soon start selling their reserves of gold to cover up the revenue. A central bank’s gold reserves are massive and selling off even a small chunk of it will cause the supply to increase and ergo, the above-explained economics may work in the opposite direction and the gold rates may come crashing down. Once the war with corona ends (Although WHEN is not known) and we emerge victorious, economies will get stable and stock prices will pick up and it is then that gold value will fall.
Sovereign Gold Bonds — It is a government-backed scheme wherein any person can invest in virtual gold and towards the end one will get an amount equivalent to the fair market value of gold, along with interest and capital gains on these bonds are exempt from tax, with which one can purchase physical gold, if one desires to—is a good option considering that it will yield good returns and will also cultivate Indians love for gold.
So, it will be feasible for investors to have a small proportion of gold investments in their portfolios for the short run to not miss this GOLDEN opportunity of earning through GOLD.