In the Indian investment landscape, gold has always been an asset that has been highly sought after. Conservative, moderate, and risk-aggressive investors have all, at various points in their investment journey, relied on gold as an ideal investment to add to their investment portfolio. Despite market fluctuations, gold has recorded a steady demand over the years. When equity markets show a downtrend, many investors turn to gold to add much-needed stability to their investment portfolios.
Needless to say, the yellow metal delivered optimal returns, with significant gains. Looking back at the historical performance of gold, it becomes evident that the price of the metal has appreciated considerably over that period.
As the investment landscape evolves, many investors may be on the fence about continuing to put their money in gold and gold funds. Evaluating the stability and performance of gold can help determine if it is a viable option for your investment portfolio.
Let’s look into the details.
The general prognosis for gold and gold funds
If you’re considering investing in gold in 2023, it’s crucial to understand its future potential. Will gold continue to be a good investment option in the upcoming years? The jury is out on that. Some experts opine that with the economy now reviving, investors may turn to other assets. Many experts, however, believe that gold and gold funds still have ample room for further appreciation.
All things considered, most experts echo the sentiment that the overall outlook for gold, ETFs, and gold funds appears to be bullish. If this pans out as expected, the yellow metal could prove to be a healthy addition to your investment portfolio. However, various factors can influence the price of this asset. Let’s take a look at these influencers.
There are some general elements that could impact the market dynamics for gold. Understanding them will help you determine if gold is a viable investment option for you and make informed decisions. Here are the details.
1. The COVID-19 situation
Many countries across the globe, including India, have started their vaccination drives. This could be good news for the COVID-19 situation, if it weren’t for the newer strains of the virus that bring in a bit of uncertainty. If those new strains turn out to be major concerns, we could see gold appreciating in value. However, if the COVID-19 situation stabilizes more permanently, investors may start to look beyond investing in gold, and consider other avenues of investment for their portfolios.
2. Interest rate influences
Interest rates play a major role in determining the market value of gold. When interest rates decrease, the opportunity cost of holding low-yielding assets like gold decreases. This makes the yellow metal an attractive investment option for investors. On the other hand, when interest rates rise, investors may consider investing in interest-bearing assets, potentially reducing the demand for gold.
3. Inflation rates
In a bid to revive the global economy, the printing of money has been increased across the world. Ultimately, this could lead to an increase in the inflation rates. If that comes to pass, investors who have added gold and gold funds to their investment portfolios have reason to rejoice. Inflation has always boded well for people keen on investing in gold. Aside from the inflation induced by the increased printing of money, general and expected inflation could also drive the prices of gold upward.
4. The value of the US dollar
Gold is typically bought and sold using US Dollars. As such, there is an inverse relationship between the value of the US dollar and the price of gold. When the dollar strengthens, gold becomes more expensive in other currencies, leading to a decrease in gold prices. Conversely, when the dollar weakens, gold becomes cheaper for investors using other currencies, increasing its demand and boosting prices.
5. The global economy
In times of economic downturns, investors often turn to gold as a safe haven asset. This increased demand can drive up gold prices. However, in times of economic stability and growth, investors may prefer higher-risk investments that offer better returns, leading to reduced demand for gold. The global economy is affected by factors, such as geopolitical events, international trade dynamics, and economic growth rates.
All in all, the outlook for gold continues to remain positive for 2023. If you are looking for the different ways in which you can go about investing in the yellow metal, there are several alternatives you can consider, such as direct gold, gold funds, gold ETFs and sovereign gold bonds issued by the government of India. Depending on your investor profile, you can choose to add any of these products to your investment portfolio. Take help of experts at Tata Capital Wealth to get started.
07 August 2024
5 mins read
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