Till date, as of October 29, 2024, gold has gone up around 30% year over year, and silver is up by more than 20% on the back of rising demand and fast approaching Dhanteras and Diwali. It is a propitious moment for most Indians to buy gold. The practice had been so deeply ingrained and financially prudent that people did not stop following it. Against this backdrop, can the decision to buy gold this Dhanteras prove profitable?
Gold’s Super-Year-over-Year Performance
At a time when gold prices in India register a deafening 30 percent year-on-year increase, the yellow metal is coming out to be one of the most prominent asset classes. Domestic gold prices have notched up 32 percent return since last Diwali as compared to 25 percent of the S&P BSE Sensex. It’s a “safe haven” asset, and when things are economically turbulent, people want to stabilize themselves with this very asset.
Several factors are giving gold prices a recent thrust. Rising geopolitical tensions and inflationary pressures have buoyed gold’s popularity amid a significant increase in gold reserves among central banks worldwide. After the Russia-Ukraine conflict early this year, central banks globally amassed gold to enhance their reservoirs. This robust worldwide demand is good news for investors because it indicates gold’s value will be resilient, and therefore, that commodity is an excellent buy for long-term investments.
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Gold as a Safe Haven from Economic Volatility
Gold is considered as an attractive asset class when economic volatility and high inflation are apparent. Varun Gupta, CEO of Groww Mutual Funds, stated that, “gold is one of the best asset classes in which to invest during the time of high inflation and especially when markets are unstable.” Recent changes in gold exchange-traded fund have made it a more accessible investment option for investors. This reduces the LTCG tax for gold ETFs to just 12.5% over a holding period exceeding 12 months, at par with the tax in the equity investment, so the gold ETFs really became competitive and tax friendly.
Festive demand for Gold
Gold demand remains resilient in India even at record-high prices hovering around Rs 79,000 per 10 grams. According to the World Gold Council, purchasing activity in gold has been going up with Dhanteras and Diwali around the corner. There are cultural as well as investment-related reasons behind it. Wedding season and recent economic recovery in rural areas also support this.
The retailers have retaliated with designs that are lighter, for everyday wear. The retailers are offering a consumer-friendly option at high prices. “Retailers have invested in new designs and technology to make lighter jewelry that appeals to consumers even at high prices,” Sachin Jain, Regional CEO of the WGC in India says. The WGC believes that gold demand will continue well beyond Diwali and into the wedding season. That is always a good period for gold sales in India.
Future Trends in Gold Economies and Geopolitics
The recent surge in the price of gold reflects more the broader effects of the economic and geopolitical developments. The last year has had a range of global problems, including growing interest rates and anxiety about an economic slowdown as well as persistent tensions in geopolitics, all which have amplified interest in gold as a safe investment. Consequently, many investors seek gold as a reliable hedge within their portfolios.
even at these elevated gold prices, the fundamentals remain supportive of gold investment this Diwali.” Of course, returns from gold are certainly quite attractive, but according to Mehta, the bigger importance lies in gold acting as a portfolio diversifier, especially at this juncture of ongoing uncertainty in global markets.
Amit Goel, Co-Founder & Chief Global Strategist at Pace 360, expects the wedding season to surge the demand for gold more. He says, “traditionally, gold prices go up by 4% during the Indian wedding season from November to February.” The seasonal trend is well in line with the overall trend of gold, thus this might be a suitable time for those who would like to invest in the long term in gold.
Strategic Approaches of Gold Investment
According to experts, the market conditions suggest strategic investment in gold. Palka Arora Chopra, Director of Master Capital Services, said that investors should allocate about 10% of their portfolios to gold, whether in physical form or through digital investments like ETFs and gold mutual funds. According to her, “a 10% allocation in gold can provide both growth potential and stability,” making it an ideal choice for wealth preservation.
Chirag Mehta of Quantum AMC advocates staggered investment in gold ETFs, wherein the investor can build his or her gold exposure over time and also mitigate the impact of price fluctuations. Gradual investment helps the investor avail of dollar-cost averaging in this high-price environment.
Nitish Rao, Head of Products and Proposition at Epsilon Money Mart, too likes staggered investments. According to him, “with MCX Gold up around 30% since last year, a staggered investment strategy could be wise given the global situation.” According to Rao, it would enable investors to make good money on future potential gold price hikes while keeping risks low while buying at the peak.
However, over-enthusiasm on the positive side is what experts discourage. Saksham Malik, Founder Rabbit Invest has a word of caution where he says: “with gold prices reaching almost its all-time high, investment strategy with some amount of cost averaging is more prudent. Gold is an important asset and should be done in an intelligent manner with an inflated price tag like this”.
Silver: Investment with Add-on
Besides gold, silver prices have also appreciated and continues to provide another alternative investment space for diversification in precious metals. Known among investors as “poor man’s gold,” silver boasts a low-cost entry that tends to track similar, though with greater volatility trends, compared to gold. Investors who wish to invest in a precious metal which has growth potential may like to check into silver ETFs and coins on Dhanteras.
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Conclusion: Is the investment sound made at Dhanteras time?
With recent price gains and traditional appeal, gold happens to be a great investment option this Dhanteras. The metal has performed well over the last year, and its stability and resilience in the face of global economic uncertainty are the reasons why it should be an attractive investment. Favorable tax structures and robust festive demand coupled with the upcoming wedding season which will fuel further interest would make gold a compelling choice for investors seeking both growth and security.
An ideal distribution, as most finance experts would say, for a diversified portfolio would be an investment in gold to the tune of 10%. Together with staggered investments through the digital forms, that of gold ETFs, would ensure maximum return along with the least possible risks. Since gold still works like a hedge against the uncertainties of the economy, it is the best time, for Dhanteras this year, to bring home some gold into an investment portfolio.
Gold stands out as a constant reliable store of value having a long history of being profitable in a world always in a state of change. This Dhanteras, with the convergence of economic, geopolitical, and festive factors, investing into gold may be a particularly opportune and profitable proposition for wealth preservation and eventual growth in the years that follow.