Gold : For return generation or beating inflation ?
After
discussing about equity and debt asset class, we are now going to talk about
gold. From ancient time gold has a prominent position in our country. Gold is a
precious metal. Almost every Indian has stored it no matter of the quantity. In
India, we are gold obsessed people and the largest gold consumption country in
the world. It is the reason after global decline in prices of gold its price
has not gone down in India. The demand is still high after many efforts done by
the government to curb the demand of it.
Uncertain
global economic market has also increased the demand of gold. Many of wealth
managers now took it as a part of their portfolio. In my opinion gold as an
asset class is hedge against the inflation.
One can take a limited exposure of gold in their portfolio. When equity
and debt market not generate the return and even not beat the inflation then it
comes to rescue for portfolio value.
After
2007, the steep rise in gold prices has lured many investors and many of the
investor has purchase significant quantity in their portfolio. I have
repeatedly said to the investors and through my blogs for limited exposure of
gold in the portfolio. Equity derives their value from companies, real estate
derives their value from rental income but gold has no commercial use and
produce nothing except gold ornament. There is nothing to evaluate the value of
gold. Its price only depends on demand and supply. A very famous line about
gold has said someone that the value of gold is in the eye of buyers. We cannot
evaluate its true value.
Uses of Gold:
- Worldwide central banks and governments hold
gold as a reserve currency in uncertain economic condition. Gold can help
hedge such risk of devaluation of money, inflation and deflation.
- Many companies and banks are providing loan
against gold. People pledge their gold and get loan instant.
- In India gold mostly uses in ornament form.
People in India have special emotion for gold. The buy gold for many
auspicious occasions like marriages, functions, festivals and etc.
- Many fund managers buy it for portfolio
diversification purpose.
Traditionally, in our country gold are purchased in the form of
jewellery, coins and gold bar. It has many disadvantages like storage cost,
making charges, quality issue, purchase at a premium and resell below market
price. Due to these disadvantages people now adopt unconventional way to
purchase gold like Gold ETF, Gold Mutual Fund, It offers lower storage cost, no
quality issues, and better pricing.
If you want more information
regarding investment realted or you have any other query about investment feel
free to ask us.
Warm regards,
Arvind Trivedi
Certified
Financial Planner
