All About Investing in GOLD
December 28, 2012
Gold- An Essential Component in Any Long Term Portfolio: Gold serves as a foundation asset within any long term portfolio. For centuries, particularly during times of financial stress and the resulting 'flight to quality', investors have sought to protect their capital in assets that offer safer stores of value. Gold mutual funds serve as a simpler option to invest in gold with enhanced liquidity and flexible investment amount. Gold also offers refuge from widespread default risk and insurance against volatility in other asset classes. Let us look at the benefits of gold as an investment class and the advantage of investing with gold funds. Benefits of Investing In Gold Gold is an instrument which defends our portfolio against various systematic & unsystematic risks:-
Risk Management: Gold has negative correlation with other asset classes. Negative correlation coefficient between
two assets reflects that they move in opposite direction. Thus gold acts as a hedge in our portfolio against equities and debt. Portfolio Diversification: Diversification is the process of allocating money into different asset classes. We diversify our portfolio to protect it from adverse movement in any one asset class. This limits the volatility in a portfolio. Statistically the portfolios which contain gold are more robust and less volatile than those that do not have gold. Stable and Steady returns over time: price of gold have moved steadily over the past years. Even during the recessionary phase of 2008-09, gold was the only asset class which stood tall. Inflation Hedge: Gold is a perfect hedge against inflation as it stands against the hiccups of monetary and fiscal policies. Gold is a precious commodity and also acts as reserves for central banks. Historical Trend in Gold Price:
Gold vis-a-vis Nifty
550 450 350 250 150 50 Dec-03 The chart on the right shows the price movement of Gold (INR) along with S&P Nifty since Dec’03....