Gold : A dependable asset for hedge, security & predictability

Gold isn’t just a shiny metal—it’s a financial powerhouse. Whether markets soar or crash, gold holds its value, making it a trusted hedge against inflation, economic uncertainty, and currency fluctuations. From ancient vaults to modern portfolios, it remains a safe haven, offering liquidity and long-term stability.

Traditionally, Gold was found in the form of coins, ornaments & bars. A metal that was held for its investment value. In addition, it holds sentimental value, and has been considered as one of the most tradeable assets with an increasing value. It has predominantly been considered as a hedge against Inflation, storage of value and a hedge against home currency depreciation (as gold is priced in US $ globally). More importantly, the finite supply of the metal and growing demand lends to it stability, even during inflationary periods.

Some factors that influence gold prices include:

1. Global Economic Uncertainty – Gold remains a safe-haven asset, with investors turning to it during geopolitical tensions and inflationary pressures.
2. Wedding & Festival Demand – Seasonal demand, especially during wedding seasons, significantly impacts gold prices.
3. Central Bank Policies – The Reserve Bank of India’s stance on gold reserves and global monetary policies affect domestic pricing.
4. US Dollar Strength – A stronger dollar makes gold more expensive for Indian buyers, influencing demand.
5. Gold Import Duties & Regulations – Government policies on gold imports and taxation play a crucial role in price fluctuations.

Going back in time, Gold was always connected with money, up until the second world war. Since the collapse of the Bretton Woods System in 1971, the system of the ‘Gold Standard’ officially came to an end. (References to the Gold Standard refer to two key periods in history: that of the Classical Gold Standard and that of the post Bretton Woods gold-pegged exchange rate system). However, Gold continued to retain its position as a safe haven owing to a people’s natural cultural affinity towards Gold.

The yellow metal plays a hugely important role in individual and household finances across the spectrum. It can bring the financial security needed to start a business, or help individuals meet unexpected costs such as healthcare expenses. Often seen as a long-term asset it can also help ensure financial freedom in retirement. But there are other benefits too, including financial system stability and expanding access to other banking products. Where consumers trust and understand gold, retail banks have an opportunity to offer gold-backed banking products to appeal to a larger range of consumers. With financial inclusion being one of the major priorities in India and the world, digitisation of Gold and the development of ‘new’ products that allow investors to buy, sell or manage gold online has been changing the landscape of investing.

Over time, investors have been finding different modes, through which to invest. We have listed some of them below.

1. Physical Gold

• Jewellery & Ornaments – Traditional form, but includes making charges.
• Gold Coins & Bars – Purity-certified, ideal for investment.
• Bullion – Large-scale investment, typically for institutional buyers.

2. Digital Gold

• Gold ETFs (Exchange-Traded Funds) – Traded on stock exchanges, offering liquidity without physical storage.
• Mutual Funds – Invest in gold mining companies or ETFs.
• Sovereign Gold Bonds (SGBs) – Issued by the RBI, offering interest along with gold price appreciation.
• Gold Accumulation Plans – Allows systematic investment in gold over time.

3. Gold Derivatives & Trading

• Gold Futures & Options – Traded on commodity exchanges like MCX, suitable for experienced investors.
• Gold Mining Stocks – Indirect exposure to gold through companies involved in mining.

Each option has its own benefits, depending on liquidity, security, and investment horizon.

Over the years, multiple factors including the Covid -19 pandemic, the Russia-Ukraine war, persistent inflation, slowing global economic growth, and aggressive central bank buying — have been key drivers of gold prices. The burgeoning trade war has also impacted gold prices significantly. Additionally, interest rate cuts by the central bank also provided further support for gold. As gold prices continue to touch an all-time high, we are likely to witness some profit booking. The chart tracks gold prices since 1995 and gives us an indication of how prices have constantly moved up since.

What should your investment strategy be?

• Accumulate gold on dips for long-term gains.
• Diversify portfolios with at least 10-15% allocation to gold.
• Opt for digital modes of investment like Gold ETF’s.
• Monitor global trends to make informed investment decisions.

In conclusion, Gold as an asset class had yielded over 200% return over the past 6 years. It has been one of the single most asset class that have not witnessed a loss of value and continues to remain a one of the best hedges against market volatility. With investing in the asset class becoming simplified, the demand for the yellow metal has been rising; a trend we expect to see continuing over the years. While it’s a great idea to book some profits in gold when prices witness a rise, it’s important to maintain a 10-15% allocation to the yellow metal.