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Why Gold is the Perfect Investment for You This Diwali


The festive season from September to November is the most auspicious time to buy gold in India. The demand for this asset shoots up during the end of the year because of the abundance of weddings and festivals such as Durga Puja, Navratri, Dhanteras, and Diwali, when buying gold has a special significance. In addition to its religious and cultural significance, the yellow metal is regarded as a wise investment option because it retains its value even during periods of financial distress. Below, we delve into three reasons why gold is the perfect investment to make this Diwali.

3 Reasons Why Gold is Perfect Investment

There is a High Demand for Gold

The demand for gold investments comes from various sources like jewellery, coins, bars, central bank demand, and use in the technology sector. While investment demand through Gold ETFs shows signs of slowing down, consumer demand for physical gold is improving. Major gold consumers like India and China have bounced back from the pandemic-induced recession, and consumer incomes and sentiments have improved. The upcoming festive season is posited to further aid the uptick in consumer demand.

Gold is a Stable Asset

Things on the macroeconomic front appear much brighter now. Economies have opened up again, consumer sentiment and spending have increased, and the stock markets have rallied. However, higher inflation, dissipating growth, and the potential effects of tapering pose risks that consumers and investors cannot ignore.

Higher inflation tends to hurt consumer demand and slow down economic recovery. At the same time, corporate earnings will be under pressure as interest rates and inflation rise, resulting in stock market volatility. In these circumstances, allocating at least 10-15% of your portfolio to gold investments will help mitigate these economic risks and cushion the overall impact on your portfolio during times of stress and uncertainty.

Gold Provides Liquidity

The gold market's high liquidity is one of its most appealing features. Many people seeking funds for medical or financial setbacks at the peak of the pandemic in 2020 took advantage of their gold savings, and this was only possible because of how liquid the asset is. This shows that gold's liquidity is not affected even during times of financial stress, making it a far less volatile asset to own in today's unpredictable world.

Coins, bars, and jewellery are not the only ways to purchase gold. You can also invest in digital forms such as gold bonds, ETFs, or gold mutual funds, especially if you are a long-term investor. Sovereign gold bonds are government securities that have emerged as a popular alternative to physical gold. Denominated in gram multiples, SGBs are viewed as low-risk investment options with a lower purchase cost than physical gold. If you're in the market for gold investment, you should know about the latest Sovereign Gold Bonds issued by the RBI.

Additional Read: Why Invest in Sovereign Gold Bonds?

The Latest Tranche of Sovereign Gold Bonds

The RBI and finance ministry have announced the next tranche of Sovereign Gold Bonds 2021-22, which can be subscribed from October 25 for five days and sold in four tranches until March 2022. The selling of bonds will be confined to citizens, trusts, HUFs, universities, and charitable institutions, and the RBI will issue them on behalf of the Indian government. Gold bonds shall be denominated in multiples of grams, with 1 gram being the minimum permissible investment. With a fixed rate of 2.5% per annum, investors will be compensated semi-annually on the nominal value.

Additional Read: Sovereign Gold Bonds comparison with Gold ETF & Physical Gold

Summing Up

Although returns are a significant motivation to invest in gold, you should remember that gold's utility extends far beyond that. It is a source of liquidity, a portfolio diversifier, and can potentially combat the impact of higher inflation on a portfolio. As an investor, it might be a good idea to harness the benefits of lower prices and invest in at least a few grams of gold this Diwali. You don't have to go out and buy physical gold but can purchase it through efficient financial forms like Gold Bonds and ETFs to avail of lower buying expenses.

Disclaimer : ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund related services are not Exchange traded products and I-Sec is just acting as distributor to solicit these products. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing.

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