Gold is an investment vehicle which is getting lots of focus these days. Herein we explore a few reasons why gold should find a place in your portfolio.
Safe haven in unsettled times:
Gold is a safe haven in unsettled time including economic downturn and social turmoil. Take for example the recent meltdown in global economy. At a time when every other asset class was losing shine, gold prices was
increasing as more and more people was resorting back to the safety of gold.
Above charts for Nifty and Gold BeES shows the valuation of equity and gold during the tumultuous period between Nov 07 and Oct 09. While stock price was spiraling down throughout 08, Gold price was steadily increasing.
Diversification:
Gold provides another means of diversifying your investment portfolio along with equity, debt, real estate etc. It brings in stability and predictability in portfolio and provides insurance against extreme movement in valuation of other asset classes. While it does not provide as high return as equity, it is less risky, less volatile and has relatively high liquidity.
High demand but low supply:
Unlike other currencies, gold can not be printed but has to be mined and produced. Now as the reserve of gold is limited it is becoming more difficult to mine and produce gold. Moreover even if new gold reserve is spotted, gestation period before gold can be mined and produced is said to be long. Thus with less supply demand can only increase.
Hedge against inflation and foreign currency:
The value of gold, in terms of its purchasing power of real goods and services is relatively stable. Thus it acts as a hedge against inflation. Moreover, Gold has inverse relation with dollar. In future when dollar is expected to weaken, Gold prices will go up.
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