A cushion in tough times: Reasons to make gold a part of your portfolio

Looking for some reasons as to why you should include gold in your investment portfolio? Here are five of them.

November 04, 2020 12:12 IST | India Infoline News Service
In India, gold has always been traditionally viewed as an investment option that is capable of giving high returns over the long term. Over the years, gold has managed to generate returns even when the stock market has languished. This is one of the primary reasons why most investors with a conservative view and low risk tolerance tend to have gold in their investment portfolio. If your portfolio doesn’t include the yellow metal, here are some solid reasons why you should also look towards gold as an investment option.     
Gold acts as a natural hedge against rising inflation
With the ever-rising inflation figures of our economy, it is essential for you to have an investment option that can provide you with returns that exceed the inflation rate. While investing in the stock market can provide you with high returns, it is prone to volatility. 
Here’s where gold as an investment option comes into the picture. When inflation rises, stocks tend to lose value, average prices of goods and services rise, and the purchasing power of currencies gets eroded. However, with gold by your side, you can not only tide over tough times like these, but also enjoy significant returns on your investment.    
Gold tends to have an inverse relationship with stocks
Gold enjoys a negative correlation with respect to the stock market. The prices of negatively correlated assets tend to move in directions that are opposite to each other. This effectively means that when the price of stocks fall, gold tends to rise in value and vice versa. 
And so, having gold as part of your investment portfolio along with stocks can help you hedge your investment risk. In addition to that, gold adds some much-needed diversification to your portfolio as well. 
Gold is a safe-haven asset 
As you might already know, gold is generally viewed by investors as a safe-haven asset. This is primarily because investors tend to move towards this yellow metal every time there’s an air of uncertainty regarding the economy or the geo-political scenario. This is why experts often term gold as the ‘crisis commodity’.
For instance, during the European Union (EU) crisis, gold witnessed good levels of price movements. Similarly, whenever the confidence in the world governments is at a low, gold tends to enjoy a nice little run up. This is arguably one of the best reasons for you to look at gold as an investment option.                   
Gold doesn’t depreciate heavily
The value of stocks, currencies, and other assets routinely depreciate over a period of time. Gold, on the other hand, holds its value quite steadily. That’s not to say that gold is immune to any value dips. 
In fact, there have been times when the value of gold depreciated quite a bit. But then, it has always bounced back strongly. The number of times gold has managed to appreciate in value is undoubtedly more than the times that this precious metal has lost value. This is in itself a major argument in favour of having gold as part of your investment portfolio.        
Gold enjoys an ever-rising demand 
The demand and supply dynamics for this yellow metal is almost always in a very favourable situation. Since gold is generally considered to be a part of the Indian culture, the demand for this precious metal is constantly on the rise. On the other hand, the supply of gold has dwindled since the year 2000. 
With a constantly rising demand and not enough supply to match it, the prices of gold are likely to rise in the future. Such an environment is actually beneficial for investors, since having gold as part of their investment portfolio is conducive to long-term wealth creation.
These are just some of the reasons why you should seriously consider gold as an investment option in addition to your stock market investments. If your concern is about safety and security regarding storing physical gold, you could always invest in gold ETFs (Exchange Traded Funds) or digital gold. This way, you can not only participate in the value appreciation process, but you also don’t have to worry about dealing with physical gold.

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