Gold Validates Grandmother’s Wisdom in Investment Choices
Had you heeded your grandmother’s advice to invest in gold on Akshaya Tritiya, you would have seen significant returns. Current geopolitical tensions and economic instability have driven gold prices to nearly Rs 10,000 per gram. Historically, gold purchased on this auspicious day has yielded double-digit returns over the past 25 years, with prices more than doubling in the last four years alone.
Gold Price Surge
Gold prices have experienced a remarkable increase, rising from Rs 47,452 per 10 grams in April 2021 to Rs 98,955 today. This surge translates to over 20 percent returns for investors who bought gold since 2021, outperforming equity funds during the same period. However, the journey has not been without its challenges. Between 2014 and 2018, gold’s annualized returns were less than 2 percent, failing to keep pace with the 4.8 percent annual consumer inflation during those years. This volatility has led some financial advisors to label gold as a “dead investment,” as it does not generate income or dividends. Nevertheless, gold remains a valuable diversification tool, especially during times of geopolitical crises or high inflation, when equities typically underperform.
Investment Strategy and Risks
Experts recommend that investors view gold not as a speculative asset but as a means of wealth preservation and portfolio diversification. They advise limiting gold investments to 15-20 percent of an overall portfolio. With gold prices reaching Rs 1 lakh per 10 grams, many investors are contemplating profit-taking. However, the removal of the indexation benefit in 2023 means that gains from gold investments are now taxed at normal income rates, which could affect overall returns.
Sovereign Gold Bonds (SGBs) present an attractive alternative for investors. Issued by the Reserve Bank of India, SGBs are linked to the price of gold and offer a 2.5 percent annual interest, which is fully taxable. Importantly, if held until maturity, capital gains from SGBs are tax-free, making them a compelling option for those looking to invest in gold while minimizing tax liabilities.
Future Outlook
Looking ahead, experts predict further upside for gold prices, driven by escalating geopolitical tensions and economic uncertainties. The recent political changes in the United States have sparked concerns over a global tariff war, which could further impact market dynamics. As investors navigate these turbulent waters, the role of gold as a safe haven asset becomes increasingly relevant. While the potential for profit exists, it is crucial for investors to approach gold with a long-term perspective, focusing on its benefits as a stabilizing force within their investment portfolios.
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