scorecardresearchHigh inflation: Is it profitable to invest in gold?

High inflation: Is it profitable to invest in gold?

Updated: 22 Oct 2022, 12:00 PM IST

In the investment world, gold has had a prominent importance. Gold is the safest option since its worth may easily be recovered before the price of the same declines. But is it worth investing in? And moreover what aspects should one be aware of before doing so? Read ahead to know more.

Gold has always been considered as a safe option for the Indian Households. 

Gold has always been considered as a safe option for the Indian Households. 

Gold has always been considered as a safe option for the Indian Households. For a very long time, gold has had a valuable importance in the investment world.

Gold is indeed the safest option, as it is easy to recover its value before the prices of the same drops. It is also a good option in times of inflation, as currency-based assets during the time of inflation climb in prices and drop in value, while gold stays comparatively stable.

Though considering the current scenario, gold prices had been low in the year 2020. So, the question arises whether an individual should invest in gold anymore, or not? Well, the financial experts always suggest investing in gold and how integral it is to have gold in your portfolio.

Let’s look for some reasons, as to why investors should invest in gold.

Stimulus and Inflation

During the time of economic depression, public policy makers often tend to release the liquidity in the economy which definitely solves the purpose at the moment, but creates greater stimulus in the long-run because of which more stimulus is expected by the Central Bank which propels the gold prices.

But it should also be true that too much liquidity in the economy leads to inflation. Therefore, high inflation or high deficit leads to increase in government expenses which is quite conducive for gold prices.

READ MORE: Did you know that investing in gold can also be risky? We explain how

Low or Negative Real Rates

In the increasing inflation and fixed prices, people want investment which can increase or at the least can stabilise their purchasing power. But at the moment, the interest rates have been low and it is predicted that for more time they might remain low which leads to low or negative real rates. Therefore, in such a situation people might find gold as a safer option as it acts as a hedge between inflation.

Diversify your Portfolio

As discussed earlier, gold is a safe investment especially when the market is volatile. Experts suggest to always have gold in your portfolio as it has zero or very low relations with other assets. While it is also true that gold has an inverse relation with equities, which means that as the prices of equity will fall, the price of gold will rise.

READ MORE: Is digital gold worth the investment?

Highly Liquid

Gold is preferably the most used metal when it comes to currency, while it is not used as one anymore but gold still holds a high status in the economy. It is extremely easy to buy and sell gold as it is a tangible asset and has the most long-term value as compared to any other assets. It is also easy to get loans against gold. Because of the digitalization it has become easier to buy or invest in gold.

Financial experts do not suggest investing in gold in high returns as exit and entry plays a very important part. A better approach is to buy gold which will constitute 10% of your portfolio. It can be bought from gold exchange traded funds or sovereign gold bonds or a mixture of both. It would solve the purpose of supporting you in uncertain times.

Sovereign Gold Bonds (SGBs) are government securities denominated in gold with one gram as a basic unit.
First Published: 22 Oct 2022, 12:00 PM IST