Is gold losing its shine?

Over the years, gold has established itself as a rather safe investment among common people. Needless to say, India is one of the biggest consumers of gold across the world. We, not just consider it as an investment, but also our culture. People specifically purchase gold on some auspicious days every year. However, though it has many positives as an investment, it does have negatives as well. The first one among its negatives is that you never buy and sell at the spot price. The second one is that you have to store the physical gold either at your home or in deposit lockers at the bank, which attracts additional charges. To overcome these shortcomings, virtual gold was introduced a few years ago. Here, you would not be having the ownership of physical gold but you would be buying and selling it virtually at the spot price without any requirement to incur storage cost. Though you would still be bearing the transaction cost.

There are various virtual ways, in which, you can hold your gold. You can hold it via mutual funds, Exchange Traded Funds (ETFs), and sovereign gold bonds. However, the question remains the same, that is, if gold is losing its shine? And should you still consider investing in gold or is it the time to sell the gold you hold? Let’s discuss these questions one by one.

Is gold losing its shine?
From its low of 32,340 (as on May 03, 2019), gold moved to its all-time high of 40,330 on September 04, 2019, displaying a rise of around 25 per cent in just a matter of four months. The major gains were between August 01, 2019 and September 04, 2019. In this period of around a month, the gold gained nearly 13 per cent, which is almost half of what it gained in the entire 4-month rally. Now, from a high of 40,330, it is currently trading at 39,240, which is a drop of almost 3 per cent in two months. So, does it mean it is losing its shine? Not certainly, as the global tensions are yet to be softened and this decline in gold price is a direct impact of it. It just might be consolidating and waiting for a situation, which would create conditions for it to move up or down. Thus, one must maintain a wait and watch stance for now.

Should you consider investing or exiting at the current juncture?
As already discussed, since it has entered in a consolidating phase – at least from a short-term point of view – it would be ideal to do nothing. This means that you should neither invest not exit. However, if you have invested gold based on your financial plans then you can exercise entry and exit as per the requirement. As a financial plan is already a well-planned investment strategy that keeps you focused on your financial goals rather than looking at the market noise. So, if your goal is near, you can exit and, if you have a new long-term purpose, then you can consider investing more or holding your investment as of now. Just make sure that gold should not form more than 10 per cent of your overall portfolio.

In general, rather than an investment tool, gold is used as a hedging tool. When none of the asset class (equity, debt, etc.) favors, gold is something that would help your portfolio decline less, which means that your risk would be contained in an adverse condition. Hence, rather than treating gold as an investment, it is better to use it as a hedging tool. Seeking an expert financial planner’s help in understanding how to go about investing in gold would be a wiser thing to do.