In the backdrop of the raging COVID-19 pandemic and economic slowdown, investors can buy gold as part of their overall asset allocation through these instruments rather than as jewellery, especially as shops may be shut due to lockdowns.
In the first round of lockdown in 2020, gold mines were shut and recycling was also hit.
For example, gold ETFs saw net inflows of Rs 662 crore and Rs 680 core in March and April 2021, respectively.
“Given the monetary stimulus globally, inflation is likely to rise on account of higher prices of agriculture produce and commodities,” says Chintan Haria, Head Products & Strategy, ICICI Prudential AMC.
When inflation is high and interest rates do not move in line with it, investors generally get negative real returns , which erodes their purchasing power.
“Gold’s competitor, the dollar, will be under pressure going forward as all the pandemic relief measures debase the dollar and add to the massive debt levels of the US,” wrote Chirag Mehta, Senior Fund Manager-Alternative Investments, Quantum AMC in his recent gold outlook note.
A few investors may think that a repeat of last year’s run is on the cards.
“Watch the movements in alternative asset classes like digital currencies, US yields & equity markets, as these factors can potentially dent gold’s rally to some extent,” says Nigam.
Be realistic about the price targets.
If you wish to invest in gold, do not overlook your asset allocation.