This opinion comes from India. If you don’t know, India is the country that often foretells the future of Gold.
Sudesh Kumar: “Gold should be seen as one of the numerous investment options for accumulating wealth. The price of gold, which is primarily a commodity, tends to rise over time. Since investors do not adjust the price for inflation, they see the increase as positive. Kumar should understand that the long term return from gold could be the same as the rate of inflation.
However, the prices of assets are not always driven by long-term trends. There are short-term events that can move the price significantly above or below the long-term average. Gold is valued for its ability to act as a substitute for any other asset, including currency. Therefore, the demand for gold rises when all other assets, such as equity, debt and currency, are falling. Whenever there is a crisis in the markets, investors seek refuge in gold.
Kumar’s good returns from gold in the past few years have primarily come from the uncertainty in the markets following the global financial crisis of 2008. The prices will return to normal if they have shot up too much. So, Kumar should allocate about 10% of his portfolio to gold as a hedge against unforeseen events. Investing more than this would expose his portfolio to risk, and since he has no need for gold, he would be holding an asset that he is unlikely to use. Wealth building should be need-based and diversified. Kumar should desist from building wealth based on a view about the future prices of gold.”
Check out the rest of the article and follow the India market closely.