{"id":10617,"date":"2020-07-17T05:55:31","date_gmt":"2020-07-17T05:55:31","guid":{"rendered":"\/blog\/?p=10617"},"modified":"2025-02-03T14:56:38","modified_gmt":"2025-02-03T09:26:38","slug":"why-gold-is-a-safe-investment-tool-in-an-economic-crisis","status":"publish","type":"post","link":"https:\/\/tata-blog.osian.dev\/blog\/wealth-services\/why-gold-is-a-safe-investment-tool-in-an-economic-crisis\/","title":{"rendered":"Why Gold is a Safe Investment Tool in an Economic Crisis"},"content":{"rendered":"\n

Gold\nhas always been a key investment\noption for many across the world. However, when do investors look at gold and\nwhy? The yellow metal has often been seen as the go-to option whenever there\u2019s\nbeen recessionary tendencies. In the wake of the covid-19 pandemic too, gold prices have seen an uptick, as the\nworld is witnessing an economic\ndownturn. In an unprecedented time such as this, gold prices have shot up in India. <\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Historically\ntoo, gold picks up whenever there\u2019s a downturn. Take the financial crisis of\n2008, for instance. Gold outperformed most other asset classes and fetched\nreturns of 6 per cent when equities fell by a whopping 60 per cent during that\ntime in India. Gold prices\nand the stock market tend to have an inverse relationship with each other.\nWhenever the stock markets take a downturn or collapse, gold rises in demand,\nand more investors look for it.<\/p>\n\n\n\n

More\nrecently, even during the US-China trade war that began in 2018, gold prices\nagain saw an uptick in 2019. The uncertainty in trade negotiations and the US\npresidential campaign were seen as some of the reasons. <\/p>\n\n\n\n

According\nto the World Gold Council\u2019s (WGC) report released in mid-May (1)<\/sup>,\ngold has gone up by more than 12 per cent in the world market thus far in 2020.\nCountries across the world, including India, announced economic stimulus\npackages, and gold has seen to benefit from such steps, the report noted. The\nWGC report also forecast that if there\u2019s an emerging markets slump, gold\u2019s\nresults this year and next will be higher, and will stay in the positive range\neven two years from now. However, if the world slips into a much greater\nrecession, this year\u2019s good performance may be followed by a dip in 2023 and\nturning negative in 2024. Depending on the recovery speed and how the global\nscenario unfolds the five-year return on gold investments could vary greatly. <\/p>\n\n\n\n

How has gold performed in\nrecent times?<\/strong><\/p>\n\n\n\n

In\nIndia, gold has always been seen as a hedge investment. Investors are known to hold on to gold as it is seen\nas an investment mechanism that offers protection from inflation. When the\ncurrency value drops during an inflationary period, investors hold tightly to\ngold. Gold prices\nalso provide the much-needed cushion for investors whenever there is an\nincreased volatility in the market.  In\naddition, when the value of the rupee depreciates against the US dollar, Indian\ninvestors stand to gain in overall returns in gold investments.<\/p>\n\n\n\n

In\n2019, India saw gold\nprices jumping nearly 25 per cent on the MCX, the Multi-Commodity\nExchange of India. In mid May of 2020, gold touched a high of a little over Rs\n47,900 for 10 grams on the MCX, and at that point gold price had seen a 16 per\ncent rally thus far in 2020. This happened on the back of the covid-19-related\nuncertainty, and fears over the US-China tensions. However, more recently, on\nJune 5, gold prices\nsaw a drop. On the MCX, gold futures shed over 2 per cent or nearly Rs 1,000 or\n10 gram in one day. The reason was that economies globally have been reopening\nand unemployment rates in the US have been falling. In May, US unemployment\ndipped a little to 13.3 percent as 2.5 million jobs were added. <\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

(Source:\neconomictimes.com*)<\/p>\n\n\n\n

What should an investor look for?<\/strong><\/p>\n\n\n\n

The\ngrowth forecasts for the Indian economy have been around 3% for FY2020 and\nabout 6.5% for FY21. However, these numbers are subject to revision. If you are\nan investor, you may be looking closely at the developments. Since gold is\nalways seen as being in an inverse equation with equities, you may also be\nwatching your gold investment\ncarefully. <\/p>\n\n\n\n

In\nterms of average returns, gold has delivered 14.10 per cent every year, for the\npast 47 years, according to the WGC\u2019s India report in March 20202<\/sup>.\nMeanwhile, the rupee has seen depreciation this year, which can turn out to be\ngood for gold prices. <\/p>\n\n\n\n

If\nyou are an individual investor, you have many options to invest in gold. You\ncould opt for gold ETFs (exchange traded funds) or GSBs (gold sovereign bonds).\nThere is also physical and digital gold buying as options. However, it helps to\nremember that any investment\nshould be seen as a long-term goal, and gold would be part of your portfolio as\na hedge option and\nto offer stability from volatile markets. <\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

In a nutshell<\/strong> <\/p>\n\n\n\n

Gold has traditionally been seen as a good investment option to have in your portfolio, as it provides that much-needed stability in a volatile market. It has historically been observed that gold shines every time there has been an economic downturn, from the global financial crisis of 2008 to the recent times when there has been a trade war between the US and China, to today, when there’s a covid-19 pandemic-related economic downturn. If you are an individual investor, it\u2019s time to explore Tata Capital for a range of wealth management and investment opportunities, apart from advisories and expert guidance to grow your wealth. <\/p>\n","protected":false},"excerpt":{"rendered":"

Gold has always been a key investment option for many across the world. However, when do investors look at gold and why? <\/p>\n

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