The year 2020 has so far, seen gold outperforming every asset class by a distance. Equities are in the negative, interest rates have collapsed and so have real estate prices.
This year gold has shone as an investment and for a consumer, buying has been very painful due to the high cost.
|Price on Jan 1, 2020||Price on July 18, 2020||Returns %|
|22 Karats||Rs 38,200||Rs 47,460||24%|
|24 karats||Rs 39,100||Rs 48,460||24%|
Covid-19 infections pushes gold prices higher
Investors seek shelter in gold, when the economic conditions take a turn for the worse or there are geo-political tensions or natural calamities.
The Covid-19 pandemic has led to lockdowns and hence economic slowdown and investors have taken shelter in gold. According to the World Gold Council, Gold ETFs are seeing record inflows. This could be pushing gold prices higher.
Gold ETFs are nothing but investing in gold in the electronic form. They track gold prices, are extremely safe and very liquid in case you need to sell during an emergency. It's highly likely that gold may see some more inflows in the coming months, given that investors do not have too many investment choices at the moment.
Should you sell gold now?
To be honest, nobody can predict the price of any asset class, given that it is not possible to see into the future. If Covid-19 infections continue unabated and a vaccine is delayed, we might see gold continuing to get support.
Apart from this, the huge easy monetary policy adopted by central banks, will keep liquidity robust and interest rates low. Both these tend to support gold prices.
For the time being it looks like gold prices are unlikely to fall anytime soon. In case, if you have invested in the precious metal, it is best to stay invested. It is not advisable to buy at such high levels. Even over a longer period of 7 years, gold has generated much better returns than most large cap equity mutual funds and also bank fixed deposits. One can stay invested in the precious metal.
As a prudent investment practice, it is best to keep about 10 per cent of your investment in gold.
About the author:
Sunil Fernandes has spent 25 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. His forte remains stocks, mutual funds and tax planning.