Relative strength of gold with Nifty in rupee term. Click to expand
Gold is a valuable addition to a well-diversified portfolio for several reasons. Here’s why:-
Hedge against Market Downturns: Gold provides stability and protection during economic uncertainty, serving as a hedge against equity market downturns.
Inverse Correlation with USD: Historically, gold has shown an inverse correlation with the value of the U.S. dollar, acting as a safeguard against currency fluctuations.
Global Pricing: Gold is priced in USD globally. This means that when the INR strengthens against the U.S. dollar, the local price of gold may decrease in INR terms, and vice versa.
Reliability during Black Swan Events: Investors often turn to gold during unpredictable events, as its price tends to appreciate when other financial instruments falter.
Historical Performance: Over the long term, gold has historically provided an average annual growth rate (CAGR) of around 10%. Investing in gold via Sovereign Gold Bonds (SGB) offers an additional 2% return and tax-free gains on gold price appreciation.
Healthy Returns: Considering a potential return of 10-12% post-tax, investing in gold can yield healthy returns.
At least 30-35% of your portfolio should be gold.
The relative strength chart of gold in INR with Nifty indicates that gold is currently near its low. Historical data from 2000, 2008, and 2020 show that whenever the market experiences significant declines, gold prices tend to rise rapidly.
Stay tuned for more insights on Sovereign Gold Bonds in future posts.
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