Gold has remained the most precious asset in our lives ever since the concept of wealth creation was curated by human civilisation.
By Vidit Garg, Director, Mygoldkart
Gold has remained the most precious asset in our lives ever since the concept of wealth creation was curated by human civilisation. Our country is the second-largest consumer of gold worldwide, and Indian people possess a profound attachment with gold, considering it an integral part of auspicious occasions.
In the investment category, among the performances of various asset classes, the winning asset remains inconstant every year. If gold can be concluded as a strategic asset class this year, we need to analyse the advantages and disadvantages of holding gold versus other asset classes. Furthermore, the expensive metal should be beholding from a strategic point of view, specifically from the perspective of its long-term view. Here’s a roundup of gold’s key advantages and disadvantages that help us analyse if the yellow metal strikingly stands apart from other asset classes.
Pros of gold- the most desired possession
As Indians are addicted to this priceless yellow metal for being a symbol of prosperity, sophistication & wealth, they own it in the form of jewelry or ornaments. Gold holds special astrological significance for bringing good luck. The valuable metal is invariably purchased for all religious connotations and family occasions, including marriage, birthday celebrations, anniversaries, and many more. Besides, gold is the most desired commodity utilised for investment purposes, especially by the millennials. Moreover, it is a haven asset that hedges against systemic risk, currency depreciation, and inflation. While these are the prime benefits of owning gold, it is essential to note down the disadvantages of this precious metal.
Cons of the expensive & luscious Gold
The main disadvantage of holding Gold is that the metal is unproductive. Owning luscious gold is easy; storing it involves the risk of theft and burglary as it is one of the most expensive metals globally. So, people are scared of keeping it at home and instead opt for a bank’s deposit box or a third-party storage firm that requires exorbitant charges. Armed with a fluctuating nature, it involves price volatility that can lead to severe losses. Moreover, it is not a passive investment like stock and bonds and hence, earns no regular income in interest and dividends. Over the past 10 years, there have been a mere 5.7 per cent gold returns in India. Such returns are meager than the last 15, 20, and 25 years that were 11.6 per cent, 12.4 per cent, and 9.4 per cent, respectively. Standing in the present scenario, NIFTY has given a return of 15.5 per cent till now in the last 10 years.
Gold was once priced at Rs 4,000 per 10 gram, and BSE SENSEX stood at around Rs 4,000 in 1999. However, the prices increased to approximately 12 times by the end of 2021. Presently, both gold and SENSEX stand at Rs 47,000. As the underlying shares have provided SENSEX with an additional dividend and considering this average dividend, the SENSEX would be at 17 times than what was prevailing in 1999.
On top of all, Gold embraces counterparty risk and is not backed by any undertaking governments. As various governments are treating it as a reserve currency, the value of the precious metal is worth appreciating. Notably, some countries like China also switched the US Dollar reserve to gold reserve.
Conclusion
Considering the aforementioned opportunities and obstacles, we can conclude that ample options are superior to Gold, viewing investment purposes only. However, experts advise investors to limit around 10 per cent to 15 per cent of their investment portfolio in Gold.