Here are some options for investors looking at adding the precious metal to their portfolio
Investments in precious metals-based instruments have yielded attractive returns over the last few years. The spot price of gold has gone up from Rs 15,000 for 10 gm to over Rs 19,000 - almost a 25-percent rise. On the other hand, the price of silver appreciated more than the price of gold over the last one year. Gold's out-performance in the global markets remained higher than its out-performance in the domestic markets due to the rupee appreciation against the US dollar.
These are some of the major factors that are driving the prices of precious metals:
Safe haven
The hunt for 'haven buying' has propelled the prices of gold during the turbulent times in the global economy. The recent spurt in the prices of precious metals is due to increasing nervousness in the global developed markets. Also, the markets have appreciated quite a bit over the last few months and buying in precious metals has picked up as investors are not convinced about the near-term outlook of the stock markets. Hence, they are looking at diversifying into gold.
The demand for investment options in precious metals has increased over the past few years. Mutual funds having precious metals among their underlying assets have had a growth and increase in their assets under management (AUM). Metals such as silver have recorded a higher appreciation due to demand from the industrial sector.
More consumption demand
The increased consumption demand (jewellery) for gold in Asian countries has been another driver of its prices during the recent few weeks. In addition to individual investors, many large fund houses and even some countries' central banks are looking at buying gold as part of their risk mitigating strategy.
Hedging activities
Hedging and speculation are other main drivers of precious metal prices in the international markets. Investors consider gold as an international currency accepted everywhere in the world without it having a direct relation to any country's economic condition.
Many large investors here consider gold as safer to invest in, in the current economic situation.
Better risk-returns ratio
Gold and gold-based investment instruments offer a good risk-returns proposition for investors looking at diversifying their portfolio from pure equity or pure debt-based instruments. Although the prices of precious metals are trading near their all-time highs, analysts still believe there is scope for further appreciation from the current levels in the medium term, and therefore long-term investors should invest at dips during correction phases.
Gold remains one of the favorite picks among precious metals due to the availability of many investment options.
These are some of the investment instruments one can consider to invest in gold:
Exchange-traded fund (ETF)
These are like mutual funds that invest in precious metals. ETFs provide an easy option to invest in the precious metals pack. ETF positions are quite easy to liquidate as they are traded in the markets. Also, it is easy to maintain ETF positions as they can be held in a demat account like any other stock positions.
Coins and bars
Gold and silver bars and coins is another way to invest in precious metals. Many banks and authorised dealers sell gold coins and bars which are of standard quality.
It is important for investors to differentiate between investments and consumption when it comes to buying gold or silver. Purchase of gold or silver ornaments is not the same as investing in precious metals as it comes under consumption. Liquidating ornaments comes with the loss of its making charges. Also, it is not easy to take a sell decision due to sentimental attachments.
