Why investing in gold could be less risky for Indian investor

Sachin Kapoor, Principal Advisor, Clovek Wealth Pvt. Ltd.

Amid Covid-19 pandemic, investors look for safer avenues to park their savings and make investments. After registering its best run last year since 2010, this year gold has scaled record highs in some of the major currencies barring the US dollar. Experts are of the opinion that the yellow metal could be considered as a valuable addition to an investor’s portfolio amid the market uncertainty marred by the pandemic. Here’s why investing in gold this year could be a safe option.

Gold held steady on Friday to its best week in more than three months, driven by an escalation in US-China tensions, with investors also looking for a hedge against possible inflation as hopes for more stimulus measures grow.

Given the rally in gold prices, spurred by negative interest rates in developed economies and continuous buying of dollars by central banks, the question remains if it becomes a viable option of investment amid the ongoing crisis. Wealth management expert Sachin Kapoor told HT’s business publication Mint that the added element of currency return with the asset return makes gold a less risky investment option for an Indian investor.

Kapoor further pointed to the difference between interest rates of India and the US which is a driving factor of the currency of the higher interest rate country against that of the lower rate country. India is expected to maintain high-interest rates as opposed to the US which means gold, as an asset class, should keep benefiting from this difference.

Gold is often used as a safe store of value during times of political and financial uncertainty. Historically, amid economic turmoil, gold has delivered positive returns when the equities face a slump, explains Kapoor. Over the years, gold has also earned the reputation of being a good portfolio diversifier, therefore, allocating some chunk of the portfolio towards gold makes sense.