Gold does well when the uncertainty, around us, goes up. And the year 2020 has been extremely uncertain all along the way. Lockdowns to contain the spread of the Covid-19 pandemic have led to unprecedented fears of a slowdown in the global economy. The impending American President’s election and the trade dispute between China and the USA have accentuated uncertainty. Another key driver for gold prices is the unprecedented increase in money supply in the global economy. Infusion of liquidity has led to lower interest rates – near zero in developed economies, which has made investors consider investments in gold.
Since touching Rs 58000/ 10 gm in August 2020, gold prices have fallen 24% to trade at Rs 44000/10 gm as the global economy has started to recover after the COVID lockdown ease and the invention COVID vaccine. Now the Million dollar question is whether is it the right time to invest in Gold again and will the prices bottom out here or fall more?
We would advise, one should not invest a lumpsum amount in Gold to add to the portfolio but rather do a SIP every month of a certain fixed amount. The below table shows how the Rs 1000 SIP in Gold has given returns from the year 1997 to 2020.
It can be inferred that Gold has given more than 7% CAGR returns in the last 20-24 years. All types of investors such as Short-term investors (1-2 years investment horizon), Medium-Term investors (5 years investment horizon and Long-term investors (10-25 years investment horizon) have been benefitted and have earned handsome returns in investing in Gold through SIP.
Now we compare returns of Gold Vs Nifty to understand which market has given higher returns in the long term.
It could be inferred from the above table that when an equal amount of Rs 1000 SIP is done in Gold and Nifty for the long term, both have given almost same returns when we look at all the periods. So investors could equally allocate their portfolios between Equity (Nifty) and Gold if they are long term investors to get more than 7% CAGR returns.
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