Gold breaks records! Top 6 investment trusts that uncover investment opportunities

Gold has a rich history as a valuable asset for investors, especially during periods of economic instability.The current price of 22k gold in India is INR24 carat gold price, also known as 999 gold, is 6,565 per gram. INR7,162 pieces per gram. Here’s why gold is considered a wise investment.

protection against inflation: As you point out, gold typically retains its value well during periods of inflation. This is because unlike currency, which can be easily printed, gold is a tangible asset with a finite supply. When inflation reduces the purchasing power of money, the price of gold often increases to compensate for this decline.

Portfolio diversification: Including gold in your investment portfolio can reduce your risk. The price of gold often has a low correlation with stocks and bonds, allowing it to offset losses in other segments of your portfolio during economic downturns.

safe assets: Gold is considered a safe asset, and investors often seek it out during times of crisis or political instability. This is because gold is recognized as a stable and reliable store of value.

Explaining the rise in gold prices

There are various factors that can cause the rise in gold prices. Common reasons driving both the rise in gold prices and investors’ desire to include this shiny yellow metal in their portfolios include:

geopolitical tensions: Geopolitical tensions are currently a major factor pushing up gold prices. As conflicts intensify, investors tend to become more risk-averse, avoiding stocks and other volatile assets in favor of the security provided by safe assets such as gold.

Such geopolitical uncertainty causes economic instability on a global scale. This increased uncertainty has increased the demand for gold, which is seen as a stable and reliable store of value. Gold’s track record during volatile times makes it even more attractive to investors during such times.

Tightening of monetary policy: Central bank actions to tighten monetary policy may have a subtle impact on gold prices, but they are actually spurring increased investor interest in gold.

When central banks raise interest rates, it usually makes holding riskier assets such as stocks less attractive. Investors can secure higher returns with safer assets such as government bonds. As a result, some investors may choose to sell their stocks and allocate their investments to gold instead.

Rising interest rates also increase the opportunity cost of holding gold. Since gold does not produce income, the potential gains from holding gold become even more pronounced as interest rates rise. Nevertheless, this does not always overshadow other factors that draw investors to gold.

The main reason central banks raise interest rates is to combat inflation. Gold is often seen as a hedge against inflation, as its price typically rises with inflation. This can be particularly attractive to investors during periods of monetary tightening.

stock market volatility: Stock market fluctuations are another important factor that likely influenced the rise in gold prices in 2023. During periods of significant stock market volatility and price fluctuations, investors often become more risk-averse. They are looking for assets that are considered more stable and less susceptible to large price fluctuations. Gold often fits these criteria, given its historical status as a safe-haven asset.

When stock markets are volatile, investors may seek to rebalance their portfolios to reduce overall risk. This could include selling some of your volatile stock holdings and reallocating funds to more stable assets such as gold. Such a surge in demand for gold can cause prices to rise.

fall in value of rupee: A weaker rupee could certainly lead to an increase in gold prices in rupee terms. Since India imports a significant amount of gold, a weakening of the rupee against the US dollar, the main currency for international gold trading, will result in higher import costs for India. This cost increase will be passed on to the domestic gold price, making gold even more expensive for Indian consumers.

A weaker rupee could also impact India’s domestic demand and supply dynamics. An increase in the cost of importing gold may reduce the supply of gold in the Indian market. At the same time, some investors may see gold as a hedge against a weaker rupee, boosting demand. This disparity between demand and supply could further increase domestic gold prices.

Invest in gold and benefit from rising prices

Gold has many benefits as an investment, which is why more and more people are investing a portion of their earnings in gold mutual funds. First, gold mutual funds offer a more convenient way to invest in gold. You can buy and sell units like any other mutual fund, eliminating the need for storage or security considerations.

Most importantly, you can invest in gold mutual funds for a much smaller amount compared to buying physical gold. This simplifies the initial investment process and makes it easier to diversify your portfolio. Gold Mutual Funds, like other funds, are regulated by the Securities and Exchange Board of India (SEBI) to ensure transparency and protect investors’ interests.

Unlike other investments that often rely on market intelligence or luck, gold mutual funds are managed by professional fund managers who monitor the gold market and make investment decisions on your behalf.

The following table lists some of the top gold mutual funds in India that you should consider in your investment portfolio. However, it pays to do your research before deciding to invest.

Choosing the right gold mutual fund

When evaluating funds, it’s important to consider more than just returns. Before deciding where and how much to invest, here are some factors to consider when choosing a gold fund.

Investment purpose: When choosing a gold mutual fund, consider your investment objectives and risk tolerance. Although gold is often considered a safe-haven asset that acts as a hedge against inflation and market volatility, it is important to note that the price of gold can also fluctuate.

expense ratio: Expense ratio represents the annual fee charged by a mutual fund to cover operating costs. The lower your expense ratio, the more of your earnings you can keep.

Achievements: Examines the consistency of the fund’s past performance with the price of gold. This helps assess the fund’s management team and its ability to follow the gold market.

Gold’s movements over the past year highlight its consistent appeal as a safe-haven asset in India. Although there is some uncertainty about the future outlook, gold is expected to maintain its importance as a key portfolio diversification tool. Gold mutual funds provide a convenient and easy way to invest in the gold market, offering professional management and superior liquidity.