- Date : 23/06/2022
- Read: 5 mins
Come war or economic turmoil, gold has its value and rises always over time. Buy it whenever you have spare funds.
Gold is undoubtedly a safe investment in the Indian context. It is currently trading at prices around Rs. 52,000 which is well above the Rs. 49,000 threshold and so long it is so, it is safe. The threshold is when you take a peak and deduct approximately 10%. If it goes below the threshold in a determined span of time, it is better to pull out of that investment and search for others.
Gold has always been a safe haven investment and especially in India this has been relevant. Indians purchase the highest quantity of gold in the world. So buying the yellow metal now, since gold rates are steady at the moment, always pays dividends as prices keep going up over time. Why do gold prices drop? Usually, it is low demand and high supply. But what is bewildering is that there is the Ukraine-Russia war raging and instead of customarily gold rates escalating, prices have been steady for nearly a month. Russia Ukraine war impact on India has raised the price of essentials like cooking oil, petrol, and diesel but gold rates have been steady and so too in the international market!
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Demand for gold in India has traditionally been very high, therefore additional funds can always be used to park in gold. Almost all government-recognized jewellery stores purchase gold from the public. The buying and selling rates are declared on a daily basis by the World Gold Council and the Indian Bullion Jewellers Association.
For some reason, the prices of Gold have been rising but rather steadily. It seems to be taking a very slow trajectory upwards. The peaks attained around the 1st week of March 2022, just after the start of the Russia-Ukraine war, are similar to the peaks attained in August 2020 due to the Covid pandemic. So, we can see that during economic turmoil or geopolitical conflict the price of gold keeps rising whereas other investments take a beating. The demand for gold will be always high in India irrespective of the price. Therefore, it is safe to buy gold when the rates are steady as Indian market demand keeps raising the price of gold.
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Prithviraj Kothari, the Managing Director of Riddhi Siddhi Bullions claims that the Rs. 50,000 mark that has been breached by gold, is a success for the metal. This would always be treated as a safe haven for investors and he foresees a high demand in the days to come. Kothari expects a 20% price increase in the next six months. Sugandha Sachdeva, the Vice President of Religare also foresees high demand for gold and expects high retail sales due to the prices steadying. She feels that Rs. 48,800 is the benchmark to watch out for as far as the low is concerned. But any figure above it is surely considered a safe investment. World over, share prices have been coming down due to pressure from inflation, high rates of interest, and the like. So gold, though showing a lot of volatility is still performing better than other commodities and equity as per analysts. Sugandha feels that though gold prices are moving horizontally at the moment, inflationary pressures, the war in Ukraine, and worldwide uncertainties are going to push up the price of the yellow metal soon. So buy gold now and increase your wealth when prices will eventually rise.
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Comparing the gold price drop to the fall in silver prices, Sugandha claims that silver is a hybrid metal and is extracted from other ores like copper and lead. Gold is found in its natural form and not together with other ores. Hence the purity of gold makes it more reliable. Gold has a spot price and also an LBMA (London Bullion Market Association) price apart from hosts of regional prices. Most countries like India have a Multi Commodity Exchange (MCX) where gold is traded and gold rates are officially decided every day. The demand for gold has a worldwide acceptance and hence supports high liquidity and acceptability. Therefore, silver along with other metals has been oversold and has outperformed gold, but gold retains its demand. Gold as an investment is logical now as the recovery curve is imminent in 6 months.
India also has a huge gold loan market. People come and pledge their gold to various banks or financial institutions to collect a financial loan. People start businesses through gold loans and many other unforeseen expenses are made by staking gold. Interests on gold loans are as low as 7.3% per annum from most banks like SBI.
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People pledge their gold instead of selling it and try to pay back the loan amount and retrieve the gold. This benefits both the loan seeker and the financial institutions.
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The gold loan seeker gets to pledge his gold for a loan in cash at low rates of interest. Since it is like a family heirloom, the person seeking the loan doesn't have to sell the gold and it is a matter of pride to retain the ownership of the family's gold. Similarly, the financial institution can lend out their money although at low rates of interest but to a wider audience, where the loan is backed by gold. This way the insecurity of the customers' CIBIL rating and ultimately not getting to give out a loan is negated for the financial institution and it is able to carry on its business.
All this proves that gold is an integral part of the Indian culture and demand is always there in the market. So prices of gold will keep rising in the long run and hence is a safe haven investment indeed.
