Macro Moves

Why the prices of gold are rising constantly?

Created on 30 Jul 2020

Wraps up in 3 Min

Read by 5.3k people

Updated on 08 Sep 2020

Remember Sanjay Dutt’s Vaastav? Had that film been made today, Sanjay Dutt would not have been able to say that famous dialogue “Pachaas Tola!” (translating to 50 ounces of Gold). The reason being, he surely wouldn’t have been able to afford this much Gold with yellow metal’s prices touching record highs. This was on a lighter note, now let’s get into some informational details.

When there’s a recession or a crisis, one thing that rises for sure is depression and stress. But, there’s a commodity that shines through the crises and rises. That is Gold! Common sense would say that when there’s a crisis situation going on, the demand for Gold should go down, and hence, its prices should also reduce. But, history proves that it has always happened the other way round. And, once again, when the world is dealing with a pandemic and economies around the world are struggling like anything, gold prices are going up. Not just up,prices of Gold have touched a record high. And, the rally doesn’t seem to end anytime soon. However, the prices have fallen slightly today.

Why is Gold Recording a New High?

Although the prices have slightly gone down today, the question remains: Why are prices of Gold soaring so high? So, the simple reason is that Gold is looked upon as a hedging instrument in the portfolio. So, the investors blindly bet on Gold in order to partially cover up for the losses that their other investment instruments might give during recessions or crises. The philosophy behind this is that Gold is considered to be always appreciating. Which is also true to some extent, but that’s not the entire story.

Gold is considered to be safer for investment as compared to equity. If you analyze it during unusual circumstances (like the ones going on at present), you will see that prices of Gold have gone up, and their returns are incomparable to other investment options. But, historical data says that Gold has never outperformed equity (barring a few instances). Over the long term, equity has been a better option but, just that it involves more risk. However, risk and reward go hand in hand, and hence the reward is also there. We are not at all saying that one should not invest in Gold. But, the allocation of your capital has to be done properly.

Also, people mistake buying jewelry with investing in Gold. Jewelry involves making charges and other factors, which take the original cost to the next level. Purchasing gold bars, although it is a form of investment in Gold, involves the risk of storing it safely. Now, if you keep them at home, it’s not safe, and on the other hand, if you keep them in a bank’s locker, you pay for it. So, the best way to invest in Gold is through Sovereign Gold Bonds. But, you need to make sure that you are not investing more than 10% of your capital on gold investment. Especially at this time, when the prices of Gold are sky-high, you can not expect a return as attractive as over last year. Because, how high would it go from here, it is much difficult to say. While there’s a chance that it may come down (which probably has started today). So, allocate your capital wisely, and that’s how you would be able to meet your financial goals.

An Exclusive Guide to Asset Allocation

Investing is incomplete without proper asset allocation. 90% of the portfolio, which has shown good performances in the past years, points their victory towards effective asset allocation. Say you have brought a 2BHK flat having a fantastic view. Do you think that your work is done with that? You will modify it according to your desires; you will paint it, add furniture, and so on. Similarly, investing It is not a one-time action rather a recurring process. When you decide on investing, it is essential that you plan it well and then execute it. In short, this Guide to Asset Allocation is a tool that investors utilize to align their investments in line with their risk appetite, goals, and return expectations. 

Is it difficult, and does it require enormous knowledge? How do you do it all by yourself? To be honest, it is not a big deal at all. Let me guide you through the steps to good asset allocation through this asset allocation guide.

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Ayushi Upadhyay

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A Keen Learner. Tiny, brainy, and studious, this quiet one stays in her zone until she pops. And once she does, boy, are her comebacks snappy! There is no financial question that she can't answer through her magical blog-writing. 

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