| Sun, 06/13/2021 - 20:17
Gold is back in the news. The yellow metal has had a stellar run in the last one year, delivering 20%+ return. During the same time, equities have given negligible or negative returns, and even fixed income returns have fallen.
All this has meant that investors are now looking at Gold as an alternative to equities for their long term goals. But should you be investing in Gold now or at any time? Well, read on to find out.
Should You Invest in Gold?
The gold prices after staying almost stable for the 3-5 years, have now touched a new high of a little over Rs. 40,000 per 10 grams in the last 3-4 months.While there are some domestic factors like increased import duty on Gold (from 2.5% to 12.5%) behind this rally, the majority reasons are global. The slowing down of the global economy, uncertainty over US and China trade discussion, and fear of a recession has resulted in a flight to safe assets.
This is not the first time it has happened. For instance, in 2008, when the sub-prime crisis rocked the world, gold prices were up by 29% while equity markets around the world tanked.
Is Gold a Good Investment for Long-term Goals?
“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” – Warren Buffet
The legendary investor has never been a big fan of Gold as an investment. And there are reasons for this. Gold is not an asset that works for you. Its price, and subsequently, the returns you get depend on the demand and supply and nothing else. If there is no increase in demand, you won’t make any money.
On the other hand, when you invest in companies (directly or through mutual funds), you become a part-owner of that business. The money you invest is put to use – to produce more, to sell more, and to generate profits for you. Your money is not sitting in a bank locker, waiting for the demand to go up – which may or may not happen.
