What’s should be your strategy for primary market in FY25?

Gold has belied investor expectations over the past year after hitting an all-time high in Rs 56,191 per 10 grams in August 2020. The prices of the yellow metal has slipped sharply since then aggravated by the second Covid-19 wave that ravaged the world. Though it has recovered from its March 2021 lows of around Rs 41,000, it is struggling to cross the Rs 50,000 mark.  Coupled with this, the yellow metal has been showing volatility.

However, are these reasons to shun gold in the present situation? While some who invested last year may be showing negative returns on their gold holding, it might not be wise to dump the yellow from your portfolio.

Here are five reasons why you should invest in gold.

Hedge against inflation

There are rising fears of Inflation, and many feel it is here to stay. If inflation refuses to go away, then you should have some plan to deal with it. Historically, gold prices have done well in high inflation times. If inflation remains high, then the real yields on the bonds will remain negative for a prolonged period of time, making investors go for gold. This should help gold prices. “Gold has always been considered a hedge against inflation. At least 10 per cent exposure in gold preferably through gold bonds may be considered by investors for their long-term goals,” Sanjiv Bajaj, Joint Chairman & MD, Bajaj Capital, said.

High valuations of stocks

The yellow metal prices share a negative correlation with stocks. When stocks fall, gold tend to do well. Globally stocks have done extremely well over last one year or so. The valuations are stretched in many equity markets and there are chances of correction in equities. This may be a good time to hedge your portfolio by introducing a low correlation asset in the portfolio and gold fits the bill.

Possible geopolitical risks

Be it the Iran-USA stretched relations or the USA-China trade talks there are many geopolitical issues that took a back seat over the CY2020 as global attention focused on fighting the Covid-19 pandemic. However, as countries around the world starts unlocking, there is a fair chance that the geopolitical issues come to fore. The India-China border dispute has not fully died down and can get ignited anytime, while events such as the recent face off between British Navy and Russian Navy in Crimean Sea can further add to tensions. Rising geopolitical risks can be best handled by introducing gold in the portfolio.

Added strain of Delta plus variant

The new coronavirus variant – now called the Delta Plus – is deadly and spreads fast. It has led to renewed lockdown in some part of the world. To avoid further damage, there may be fresh curbs imposed in various parts of the world. This may cripple global economy once again, as vaccination is yet to catch up. There is a fear of third wave of Covid-19 infections. If we see dip in economic activities, there may be volatility in financial markets. In such a situation gold provide stability to portfolio.

Volatility in cryptocurrencies

Many investors may be looking at cryptocurrency as a new age replacement of gold due to the finite supply of the digital currencies. However, many of these cryptocurrencies have turned volatile. In some countries frauds have been reported in this sphere. Some of these investors may shift to gold in search of safe haven. In that case the demand for gold may go up which might keep the prices buoyant.

However, while gold is a good addition to one’s portfolio, you should not go overboard with it. “Gold has a role to play in all investment portfolios though the amount one invests in it should be in line one’s planned asset allocation” Anil Rego, Founder and CEO, Right Horizons said.