This festive season of Ganesh Chaturthi, should you invest in gold?

Ganesh Chaturthi is an opportunity for people to forget the tough times and look forward to a brighter and rosier future.

Sep 04, 2019 11:09 IST India Infoline News Service

Ganesha-gold
The festival of Ganesh Chaturthi is not just like any other festival in India. For the whole of India and especially for the people of Maharashtra, the festival of Lord Ganesha is an embodiment of hope. It is an opportunity for people to forget the tough times and look forward to a brighter and rosier future. Ganesh Chaturthi 2019 has a special significance because it comes on the back of a year when the economy has not exactly been in great shape. Consumption has slowed, liquidity is tight, and there has been a plethora of defaults. Even GDP growth has slowed. Above all, the economic slowdown has begun to pinch the man on the street. Hence, this festival of hope holds special significance in the year 2019.
 
Ganesh Chaturthi is all about looking to the future
One of the reasons the festival of Ganesh Chaturthi is so popular in India is that it is a festival of hope; and it is the hope for a better tomorrow that keeps people going. The festival also reminds us that it is not just enough to dream about the future but it must be backed by concrete action on the ground. Ganesh Chaturthi is normally considered to be “Shubh Arambh”, which is an auspicious time to start new ventures. Whether it be a new business venture, a new asset acquisition or buying investments like shares, bonds and gold, Ganesh Chaturthi is considered to be the right time to start. With equity and bond markets uncertain, the big question is whether investors should celebrate Ganesh Chaturthi 2019 by investing in gold?
 
Yes, gold makes eminent sense today; and here is why
You must have surely seen the gold rally in India in the last one year. The chart below captures the gold price trend over the last 6 years in India.
Date Source: Bombay Bullion Association
 
From a low Rs31,000 per 10 gram in the middle of last year, the price of gold has rallied to above Rs40,000 this year. That makes it 30% returns in one year, one of the best in terms of asset class returns. The bigger question is whether there is merit in buying gold this Ganesh Chaturthi, considering the gold prices currently and the recent rally?
 
Five reasons to buy gold this Ganesh Chaturthi
Rising gold prices are just one side of the story. Remember that gold never gives steady performance. It moves in spurts as we saw post the Arab War in 1973 and post Lehman bankruptcy in 2008. Here is why you should look at buying gold this season.
  • There is global turmoil due to a variety of reasons. The trade war is showing no signs of abating despite both the US and China making occasional conciliatory noises. There is the big uncertainty over the impact of BREXIT. If Boris Johnson chooses to walk out of EU without a deal on October 31, it could have a 5-6% impact on UK growth. Then there are the twin issues of the US yield curve inverting and China trying to trigger another currency war. In the midst of all this uncertainty, we have not even spoken about the Middle East and the oil wars. All this could add up to strong upsides for gold.
  • Secondly, there is unprecedented demand from central banks. Most central banks including central banks in China, India and Europe are diversifying their holdings away from dollars and into gold. That is driving gold demand in a big way. ETFs are not too far behind.
  • Gold offers a very strong hedge against the sharp correction in the Nifty and Sensex and this negative relationship is more pronounced over a shorter time period. For example, since May, Nifty is down by 10% and gold prices are up by 10%. This negative relationship is because volatility tends to work against the stock markets but in favour of gold. Buying gold makes sense as we enter an uncertain zone.
  • If you are worried about buying gold at such high prices, think about it differently. Tough market conditions are an opportunity for gold to outperform. It is not just that gold is emerging as an asset class but it is also emerging as a currency. Investors like gold because gold cannot be printed. Currency notes can be debased by too much supply and that risk is absent in gold.
  • Lastly, does gold fit into your portfolio in the current situation. Gold always has a place and your exposure to gold should be 10-15% of your portfolio. This is the time to move your gold allocation closer to the upper range. When it comes to gold it makes sense to buy gold at the beginning of the cycle rather than worry about price. This Ganesh Chaturthi is exactly offering you that opportunity!

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