Published: 03 Oct 2018
Reasons gold’s relevance continues to grow
Gold has an unparalleled status, with great economic, aesthetic, cultural and even religious value in India. But various cultural, economic and policy changes have affected how gold has been perceived over the year, and in turn, its demand and prices. Let’s take a look at these factors and how they affect you.
- Emerging markets
India’s economic growth in the past decade has been on a rapid rise, which is why different types of investors have been looking to include gold in their investments.
With an average of 840 tonnes , India’s gold demand has grown 25% despite the 400% price rise of the rupee in the last decade.
Gold imports too were high during these years. In 2017 alone India imported 562.7 tonnes of gold, up by 12% in 2016.
Related: Where does gold in India come from?
Indians view gold as a safe haven and easily accessible investment and is also one of the primary ways investors can diversify their currency exposure.
- Gold-backed ETFs
The advent of exchange-traded products has added a layer of convenience to gold investments.
Investors can purchase gold in dematerialised form through their normal demat accounts.
It reduces total cost and ensures the security of ownership. There are no manufacturing charges or premium markups, no need for special safes or bank lockers.
ETFs provide liquidity and ease of access too. Online platforms make monitoring price and targets easy. You can swiftly transact at a click of a button.
Related: The Beginners Guide to Investing in Gold ETFs
- The 2008–2009 financial crisis
Gold has benefitted from a change in attitudes towards risk and risk management by investors following the 2009 recession – new markets have appeared due east and old markets resurfaced with a better perspective towards effective asset allocation. Post the debacle, while other assets moved sluggishly toward recovery, gold gained about 24% by the year’s end.
Gold behaves as an effective diversifier in periods of economic expansion and contraction. Gold acts as a hedge against inflation and an allocation to gold is an ideal way to diversify the portfolio due to its low to negative correlation with other assets. By providing positive returns and decreasing portfolio losses, gold has been especially effective during times of systemic crisis.
Not just in times of financial volatility, allocation to gold helps portfolios beat inflation too. Times when inflationary levels have exceeded 3%, gold has yielded returns averaging 14%.
Related: How can gold be your friend during financial crises?
Gold is bought around the world for several purposes – as precious jewellery, an element in high-end electronics, a safe-haven investment, a portfolio diversifier and more. This malleable metal fits well within different objectives and needs. Just like its sheen, gold’s relevance to modern economy will continue to increase.
