Should you invest in gold this Dhanteras?

Religious reverence or smart investment – here’s what you should know before you decide to buy gold this Dhanteras

Should you invest in gold this Dhanteras

In the retail gold space, Indians are the second largest consumers of gold after China. Our love affair with the yellow metal goes far back in history. Gold is the symbolic representation of Lakshmi, the Goddess of wealth, love, and prosperity. So, on the first day of Diwali (Dhanteras) it is considered especially auspicious to buy at least a token amount of gold.

Traditional beliefs aside, there is no other asset that matches the universal acceptance gold has anywhere in the world. It works as a great hedge against inflation and as a currency in times of sovereign risk. A study by ET Wealth concluded that gold purchased each year from 2005 has offered an annualised yield of 7%, beating the cost of inflation index measured at 6.7% over the past 13 years.

Had you purchased about 10 grams of gold every year from 2005, your total investment on the metal today would be Rs 3.07 lakh, which would be currently valued at Rs 4.43 lakh. With the exception of a few lows (such as between 2011 and 2014), historically gold price has always followed an upward trajectory.

Related: Are you a smart shopper when it comes to buying gold? 

With a multitude of new-age financial products available, gold may have lost a bit of its sheen. In the same period, Nifty has offered 12% returns, and other diversified equity investments have yielded returns more than double that of gold.

The price of the metal is dependent on various global factors. Though internationally the price of gold dropped by 6% in 2018, in India the large import fee, together with weakening of the Rupee against the US Dollar, has contributed toward the 8% scale up on gold value.

Related: 5 Mistakes to avoid when applying for a gold loan

Fundamentally, the price is determined by the mining costs and Gold Forward (GOFO) rates determined by the London Bullion Market Association (LBMA), the global authority on precious metals. However, over the short- to medium-term, global factors such as the US Federal monetary policy, the US-China trade war, and the Iran oil embargo will have an impact as gold and US Dollar usually have an inverse price correlation. 

Related: Buying gold? 5 Things to check before you buy 

Over the next couple of years, both India and the US will be holding elections and the resulting geopolitical climate will also have a direct impact on gold prices.

In the meantime, jewellers in India are looking to capitalise on the traditional reverence for gold by offering free bullion tokens on purchases above a certain value, and heavy discounts on making charges of gold jewellery on the occasion of Dhanteras.

Other than being a sound investment/hedging tool, buying gold on Dhanteras has religious significance and is believed to bring prosperity to the buyer. If the purpose is to invest, Dhanteras is an auspicious day to accumulate gold coins and bars. It is also the perfect day to make purchases for an upcoming wedding in the family. Not only does gold create a financial safety net for the family, buying jewellery also helps in building wealth to pass down heirlooms for generations to come. There is no better day than Dhanteras to indulge in your gold fantasies.


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