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Whenever there is uncertainty and volatility in the stock/debt markets, people’s attention turn to gold – especially if the yellow metal’s price seems to be on the uptrend. As it is now. So, here is a sample question from our customers and our response to it.

Question:

Can you please give your subscribers a review of Gold as gold prices are rising in this testing times of corona? Should we invest in it now? Is it a good time?

Answer:

Gold has been a top performing asset class in the last 3 months, rising about 22 per cent in Rupee terms in this period. The recent performance goes to reiterate gold’s role in protecting your portfolio value when every other asset – stocks, bonds and commodities – are in turmoil. If anything the COVID crisis has reiterated the case for allocating upto 10% of your portfolio to gold, particularly if you own market linked assets like equities or mutual funds, as it seems to spiral up when unquantifiable risks loom.

gold

The COVID uncertainty apart, the global central bank response to this crisis also strengthens the case for owning gold, with governments blowing deficit targets and engaging in unchecked money printing. 

However, weighed against all this, gold is not cheap for Indian investors at this juncture with both global price rise and the Rupee depreciation pushing prices beyond Rs 42,000 (24 karat)/10 grams. If you don’t own any gold in your portfolio, you should acquire some via SGBs/gold ETFs, while not buying all at once. If you already own an allocation, wait for dips to accumulate. 

Editor’s note: It would be worth your while to read our earlier perspective on gold that we wrote in the beginning of the year.

Read about Gold Mutual Funds India here.

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Please note that any specific queries on any of our recommendations will be answered ONLY through email. If you are a subscriber, please mail contact@primeinvestor.in.  Only general queries or discussions will be answered through the comment section of the blog. For full details, please refer to this post – How to communicate with PrimeInvestor.

13 thoughts on “Prime Q&A: Should we invest in Gold now?”

  1. well with hindsight we can say YES we should (have) invested in Gold. I’m happy I followed the gold mines of bestgoldmines.com. Without them (due to their article 7 reasons why) i’d never have invested in Gold.

  2. How do you rate the gold funds? Considering the underlying asset is same across the different gold funds (unlike equity or debt funds where portfolio varies), how do you conclude the rating and recommendation on a gold fund?
    Btw, I recently joined this site and am loving it so far. Thanks for the great work.

    1. Hello sir,

      We rate gold funds on the basis of their tracking error, expense ratio etc. Gold funds invest in the ETFs of their AMC – so whatever the ETF’s efficiency is will be reflected in the fund. On gold funds, we have holds where the fund scores on these metrics. In others, we’d have a sell.

      Thanks,
      Bhavana

      1. Thanks, Bhavana. Quick follow-up on this – Do you think there is any merit in holding physical gold at all? (for safety etc.). Or given how the paper gold has evolved, one should hold all the gold investment in paper form?

        1. Hello sir,

          No, there’s no merit in holding physical gold. Several reasons – one, storing is an issue as you have locker rent, getting a locker can often involve having to take up other products. Two, there are always associated charges if you buy or sell jewellery, and will have wastage. Three, it is in reality often hard to sell gold for cash; many jewellers are wary of gold bought from other jewellers, they may at best exchange old for new, or where they do give cash, they can levy charges. So it’s hard to realise full market price. While banks sell gold coins, they do not buy it back. You’ll have to go to a jeweller. And finally, there’s always the question of authenticity.

          For the purpose of investment, financial gold is the best. For the purpose of wearing gold…well, jewellery works!

          Regards,
          Bhavana

  3. Need your thoughts on the below:

    1. Should one invest through Gold ETFs or Gold Mutual Funds? Can you help me with the Pros & cons for both?
    2. SGB is a very long term product and I want to be tactical with this gold allocation. Is that a good idea?

    Regards,
    Deepak

    1. Bhavana Acharya

      Hello sir,

      You can read our recent article on ETF vs index funds to understand how to compare them. Or you can go for whichever option is most convenient for you. SGB can’t be used to make tactical calls on gold; while you can buy and sell these instruments in the secondary market, trading volumes may not be supportive. SGBs are more geared towards buy and hold because of their interest component and tax benefits. ETFs/index funds are best for timing entry and exit in gold.

      Thanks,
      Bhavana

    2. For tactical allocations gold ETFs are best. Gold mutual funds carry two layers of fees which reduces returns. However while selecting gold ETFs do make sure it has sufficient trading volumes and trades close to.the NAV

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