With Diwali just around the corner, we as Indians have always bought gold. On the auspicious day of Dhanteras, I remember my mother buying gold be at a small amount of 1 gm. The Shine of gold has always attracted Indians.
Gold as an Asset Class
Everyone is familiar with the fact that any calamity – be it man-made, or natural one asset class you can always count on – Gold. Due to which the gold prices have soared. The gold price in March was between Rs 41,500 to Rs 42,500 per 10 grams. With Covid- 19 pandemic in just six months, gold prices have touched Rs 54,000 per 10 grams.
So the obvious question is, should we buy at this rate?
There are various factors which impact the gold prices –
- Investment demand for gold – This year, the interest in gold has been high and is likely to stay high as it is a hedge against an overvalued market, and it also acts like insurance during a recession. Hence, the demand for physical gold has increased.
- U.S. Dollar – gold is inversely related to the dollar. But the recent trend has shown despite the increase in dollar gold prices have also increased.
- Supply – the new supply of gold from the gold producer is on a decline. I had interviewed the Managing Director of the World Gold Council in the year 2003, and he was worried at that time that gold mining has started seeing a decline. And the supply is on a downhill.
- Economic and Monetary factors – everyone wants to erase 2020 from their life. The real reflection of the pandemic on economic and monetary factors will be seen in the coming months. People are cautious, and gold is always a safe bet.
- Trading volumes on COMEX – COMEX world’s largest futures market for commodity trading has never seen such high demand for gold mainly due to the prevailing pandemic.
The above factors are driving up the prices of gold. Keeping them in mind the price of gold is likely to touch anywhere between Rs 65000 to Rs 70000 by mid-2021. If God forbid Covid 19 vaccine fails then, the price can touch Rs 75000 or higher to Rs 80000.
I have always advised my clients to have 5 percent exposure towards gold be it in physical form or bonds or Gold Exchange Traded Fund. Even at the current rate, my advice is -invest in gold be it a small amount.
Happy Dhanteras and a Happy Diwali to one and all.. Stay Safe and Invest Safe everyone!!!