Gold, a precious metal with a lustrous yellow hue, has captivated humanity for millennia. It has lasted over civilization from Ancient Egyptian to the Aztec Civilization. Its allure extends beyond its aesthetic appeal, making it a coveted asset for both personal adornment and financial investment. As a tangible asset, gold has proven to be a reliable store of value, weathering economic storms and geopolitical upheavals throughout history.

Indians particularly had an inclination towards gold. Of the available instruments for investment the two instruments which had always got the most attention had been 

1. Real estate 
2. Gold

Here in this research we are going to talk about the benefit of gold investing in the current scenario.

Historically Looking 

Gold since 1981 has delivered 9.03% the growth is represented by the chart given below.

Another measure to check the growth of any investment instrument is to look at the rolling returns of the we consider 10 years rolling returns and 15 years rolling returns. 

Once,  we combine above 3 charts for gold returns over the years here are few observations

1. Gold as a safe asset class is established with only 1 year period in 10 years rolling returns, where it was negative. T
2. The 15 year rolling returns year it was never negative 
3. The gold had sub par returns till 2007 -2008, where it was in range of 3-8%, below its average long term returns. 
4. It was only after the global financial crisis that gold as an asset class was established world over. 

Establishing Gold As hedge

It was during this time that gold became an edge against the downturn and more discussion from a perspective of diversification , asset allocation started.

Factors which affect the Gold prices 

Before moving the discussion any further lets us understand the factors that move the gold. And try to see what is the current situation and how the gold can react to that. 

Central bank Reserves 

Gold is the most important reserve that the central bank keeps to strengthen its currency. Rupee, the Indian Currency is backed by Gold, (https://www.rbi.org.in/commonperson/English/Scripts/FAQs.aspx?Id=3158#:~:text=All%20banknotes%20issued%20by%20RBI,33%20of%20RBI%20Act%2C%201934). 

So, more gold helps countries to have a currency which is strong as compared to other currencies for trade in the world.

In recent years, we have seen more gold by 3 countries: Russia , China , India and Turkey, Which has led to an increase in the prices of Gold and what situation we are in currently . 

The current Situation : 

The gold buying by the central banks have started because of the Russia – Ukraine war. Since then the central banks have been trying to diversify their foreign reserves through Gold.

• Central banks are also trying to unlink currencies from US denominated trades and that can be only done through gold 
• These situations have added to central banks buying more gold in the markets and this situation is not going to improve. 

US dollar : 

The price of the US dollar and gold are inversely related.

Current Situation : 

The rate of Interest would lead to fall would lead to weakening of dollar , as dollar weakens the gold prices would appreciate.

Increase Demand for Gold 

The gold is metal which has industrial uses as well as the household. India has been a buyer of physical gold for Jewelry purposes , during the festive seasons, weddings. Women Buyers have affinity for the yellow metal.

Current Situations: 

The coming months we are heading to festivals and wedding seasons. This would lead to high gold buying and this pressure on the demand side. 

Rate of interests 

Gold as an asset class does not bear any interest, it was because most financial experts , include Mr. Warren buffet had advised against investing in gold. How does gold prices affect the rate of interest? If interest rates rise, people are interested to invest in an investment which would give higher returns like, FD , Debt instrument rises thus causing people to invest in interest bearing instruments. Whereas vice versa happens when interest rates move down. 

Current Situations :  

Since last week, US Fed chairman Jerome Powel had stated in his statement that it was time to cut the rates. This would be followed by a world over central banks rate cut. Which forms the basis that as the rate of interest would decrease instruments which are non interest bearing would lose attractiveness.

Hedge Against Inflation : 

Inflationary pressures have reached unprecedented levels in recent decades, prompting investors to seek strategies to preserve their wealth. Savings accounts, despite offering marginally higher interest rates than in previous years, often fall short of mitigating the erosion of purchasing power caused by inflation. This disparity between interest earned and rising prices results in negative real returns.

Gold, historically recognized as a reliable inflation hedge, has emerged as a compelling investment option. By offering a counterbalance to the devaluation of currency, gold helps safeguard investors’ assets from the adverse effects of inflation, ensuring that their purchasing power remains relatively intact. 

Gold, a tangible asset with intrinsic value, has historically served as a reliable store of wealth. While the purchasing power of fiat currencies can diminish during periods of inflation, gold maintains its value, making it a sought-after investment for those seeking to protect their assets from the eroding effects of rising prices.

Current Scenario :

We are definitely in a high interest rates scenario , the world over inflation was never an issue in the developed world, which is an issue they are not able to deal with. 

Safe haven Economic Downturn 

This asset class serves as safe haven in case of economic downturn ,

It was observed that during the years of downturn Gold have performed exceptionally , the performance of gold during the years FY 2009, FY 2012 , FY 2016 and FY 2020 . The performance of Gold has been better than the volatile asset class like equity . 

What Do Experts Say ?

According to Thedailygold.com, Gold in FY 26 might trade in the range of $5000 . The chart has been explained as the breakouts during gold bull runs. 

According to another gold research firm, https://www.vaneck.com/us/en/blogs/gold-investing/gold-investing-outlook/. Has also given a positive view on gold. The near term prices of gold at $3000. 

Conclusion : 

The historical performance and unique characteristics of gold paint a compelling picture for investors navigating the current economic climate. With inflation at record highs and the possibility of a global recession looming, gold’s ability to act as a hedge against inflation and a safe haven during economic downturns becomes even more attractive.

Central bank buying, a weakening US dollar, and upcoming festive seasons in India point toward increased demand for gold. While interest rate hikes may dampen investor enthusiasm slightly, the potential for future rate cuts could reignite interest in this non-interest-bearing asset.

In conclusion, incorporating gold into a diversified portfolio offers a valuable tool for mitigating risk and preserving wealth in these uncertain times. Investors should carefully consider their financial goals and risk tolerance before investing in gold, but the evidence suggests that this precious metal can continue to play a vital role in a well-rounded investment strategy.

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