Investing in gold: When is the best time to buy gold?

The global pandemic definitely had an impact on the Indian economy, which is now showing signs of recovery. After the initial collapse, the stock markets have risen sharply and remained resilient, with various economists and financial experts echoing the same sentiments.

During times like these, as an Indian investor, you might be faced with some peculiar choices. Where should you invest? Will investing in the stock market be the right move? Or, is it the right time to invest in gold?

Why is it the right time to buy gold?

Indian investors’ love for this precious yellow metal is very well known. India accounts for almost 27% of the total worldwide demand for gold, according to statistics released by the World Gold Council. According to an April 2021 report by the council, the demand for gold in India rose by 37% from January to March 2021, as compared to the demand in the same period in 2020.

Such a huge appetite for gold in India can be attributed to the following factors:

  • A stronghold of investor confidence:

Since Covid-19 spread started, almost all the countries imposed nationwide lockdowns. This hampered the industrial, business and consumer activities worldwide in the initial months.

India has been no exception. At the outset of the pandemic in India, the GDP (gross domestic product), corporate activities and profits did take a hit. Though there was a huge rally in the stock market later, investments in the stock market were still considered volatile as the Covid-19 crisis worsened.

Here, gold came to the rescue of investors as a stable asset class offering steady price rise. The price for 10gm gold went up and crossed the mark of Rs. 50,000 in July 2020.

  • Strengthening consumer sentiments:

Most of the countries in the world are ready to put the worst behind them and are ready to enter the post-Covid-19 growth phase. Out of these countries, India is bound to experience a high growth spurt due to its expanding workforce and affluent middle class.

According to the World Bank, the Indian economy is expected to grow 8.3% during 2021-2022. This could lead to a boost in national income for citizens, resulting in high demand for gold. High demand will likely push up the prices, generating attractive returns for investors.

  • Social scenario and traditional beliefs in India:

The demand and prices for gold might pick up as the economy reopens. As the restrictions would be gradually lifted, there soon would be a rise in celebrations and social gatherings.

Gold has always been an important part of Indian festivities and religious ceremonies, and the demand for this precious metal could surge. Investors who are invested in the metal could likely see an appreciation in its value.

  • Rural demand for gold in India:

India is still predominantly a rural economy, with more than half of its population residing in rural areas and forming a considerable chunk of consumer base.

Thus, demand for various commodities and assets from rural areas impact the prices of these commodities. With the forecast of good monsoons in 2021, the demand for gold could likely rise from rural sectors post-harvest.

Is it a good time for you to invest in gold?

Gold prices are comparatively stable as compared to price movements of the stock market. The interest rates for deposits in India are also in the range of 5% to 6%, at present. With gold offering comparatively higher returns than quite a few investment avenues, you could consider investing in the yellow metal to fulfill your financial goals.

However, financial advisors usually do not recommend having an exposure to gold of over 10-15% of your net-worth. If you already hold a lot of gold investments, it would be a good option to explore other investment avenues like Gold mutual funds or ETFs.

Your investments should be in line with your own risk profile and financial goals. To make sure you are taking the right investment decisions, it is a good practice to seek financial advice from an expert.