Here, we will be discussing the topic whether you should be investing in gold now
Rising gold prices in 2020 has made investors get interested in investing in gold
We have a social and historical connect with gold
Gold is also seen as an emergency investment. That's why people accumulated gold and having ample amounts was and is seen as a sign of wealth
In modern times, gold typically starts doing well when financial assets are not doing well
This means that if stocks, bonds and FDs are not doing well, gold starts doing well
Basically things that involve the currency and are denominated to it like all financial assets and investments
Remember, any currency is a store of value which allows you to buy goods and services in the present or in the future. If you are losing confidence in it, gold typically starts doing well then
People lose confidence in the currency and financial investments when there is financial uncertainty and economic uncertainty
There could be political uncertainty and all these types of uncertainty could be in a country, region or all over the world
All these things are happening in the past couple of months and that explains why gold prices have moved up
Even institutional investors put in billions of dollars in gold investments
For India, another important thing to keep in mind is that gold prices are denominated in dollars
While you would be buying gold in India in rupees. Yet, if the rupee depreciates against the dollar, gold which is mostly imported will have its prices go up
While gold is seen as store of value but history tells us another story. There have been periods when gold simply hasn't done well
If you has invested $100 in gold in 1980, in 2001 you would have been left with $17 due to decline in gold prices
This about 83% decline over 21 years. Then=, there was more than 50% decline over 1980-82, more than 40% decline 2011-14 in dollar terms
There are also periods when it has done well like the period after the global financial crisis
Clearly, gold prices go up and down and hence can't be called a "safe haven" investment since the value doesn't decline in such investments
Like all other market-linked investments, gold prices go up and down
Like stock prices, in the short term, gold prices are determined by what is called the "voting machine" or investor sentiments
Depending on speculation, fear and anxiety, gold prices can go up
In the long term, it is based on fundamentals
The factors that move the prices of gold, basically its demand and supply, is going to be determining the gold prices along with the fundamentals of the economy
When economic growth is going to happen, equities will naturally start doing better
If you as an investor believe that India's economic growth, you can't be investing large amounts in gold
In fact, gold has no real economic value. It is just that investors value it highly even as silver has a lot of economic value since it is involved in economic activities
A negative aspect of gold is that it doesn't pay dividends or regular income though Sovereign Gold Bonds give you a coupon rate of 2.5% p.a
If you are investing in physical or most other gold, you are simply banking on the capital gains
In physical gold, you have issues of purity and security or storage and loss during when you sell
If you want to invest in gold, you need to invest in gold mutual funds or gold funds and paperless forms apart from Sovereign Gold Bonds
You should also keep in mind the taxation. If you invest for 1-3 years, it will be taxed for short term capital gains under short capital gains tax and the capital gains will be added to your income
The capital gains added to your income gets taxed according to your relevant income tax rate
If you stay invested for 3 years or more you get inflation indexation benefits and the capital gains gets taxed as long term capital gains under long term capital gains tax of 20%
You should not invest more than 10% of overall investments in gold
In a bad year when financial assets are not doing well, gold can help you get some basic growth for your investment portfolio
You need to invest in a mix of asset classes: equities for long-term needs and debt for shorter term ones and gold for emergency or exceptional situations