The global financial markets are currently navigating through a period of fluctuations. These fluctuations may have created a sense of unease among many investors, leading many to reassess their portfolios and explore alternative investment avenues that ha have potential to offer more stability and long-term growth. In such an uncertain environment, gold has reasserted its position as a particularly appealing choice for investors seeking to safeguard their wealth and diversification
Safe-Haven Asset
Gold’s appeal lies in its historical role as a safe-haven asset, potential to outperform during times of economic uncertainty. As stock markets experience significant fluctuations, the inherent stability and intrinsic value of gold make it a strategic addition to a diversified investment portfolio. Additionally, with ongoing concerns about inflation, currency devaluation, and geopolitical risks, gold offers a reliable diversification that can help preserve purchasing power and protect against downside risks in other asset classes.
Market Trends
By glancing at both the short-term market trends and the long-term economic outlook, gold can play a crucial role in a well-rounded investment strategy, offering both security and potential growth during economic uncertainty.
Recent Global Developments in Stock Markets
Geopolitical Tensions: Ongoing geopolitical tensions between Russia, Ukraine, Israel and the West Bank, and disruptions in Bangladesh, particularly between major economies, have led to uncertainty in global stock markets. Issues such as trade disputes, political unrest, and international sanctions contribute to market fluctuations.
Economic Uncertainty: The Fed’s adjustments, often characterised by fluctuations in interest rates and quantitative easing measures, have generally led to increased market fluctuations and uncertainty as they try to maintain a delicate balance between growth and inflation. The ups and downs surrounding rate cuts expectations in the US before which led to volatility in gold prices and this time is no different. However, we are closing in on the beginning of rate cuts in the US, primarily driven by growth concerns and high interest costs impacting government balances. This would continue to support gold prices.
Investor confidence: Due to uncertainty created by the timing of changes to their policies, prompting for alternative investment avenue that are generally negatively correlated to traditional assets like gold.
Inflationary Pressures: The potential for inflationary pressures resulting from monetary policies may enhance gold’s appeal. Gold’s intrinsic value, coupled with its historical resilience during economic slowdown makes it a viable alternative in the current scenario. Thus, amidst the current economic landscape shaped by potential Fed’s policy shifts, gold stands out as a prudent choice for preserving wealth and ensuring portfolio diversification.
Expensive Valuation Across Markets: Equity has been the best performing asset class in the recent past. As valuations have expanded in most markets in the recent market rally, the likely return in the medium term could be muted with a probable increase in volatility if the growth slows down materially going forward and we have seen the recent job numbers in the US provide a glimpse of what lies ahead. These factors could result in market swings and unpredictable returns for equity.
Should You Invest in Gold Now?
The price of gold in India has seen a decrease of custom duties from 15% to 6% as per announcement in the recent Budget 2024. This is a good time add gold to your investments as gold prices have reduced to give effect to lower customs duty as it forms part of the Indian gold price. Gold can be a useful asset for your portfolio due to the following reasons:
The NASDAQ’s Ripple Effect: Considering recent developments on the NASDAQ, these market dynamics have caused ripple effects globally, including in the Indian stock markets, where investor sentiment has been similarly affected by fluctuations and risk aversion. As equities may face increasing unpredictability, gold’s role as a safe-haven asset becomes prominent. Investing in gold at this juncture provides a strategic means of preserving wealth, diversifying portfolios, and mitigating risks associated with ongoing market and economic uncertainties.
Liquidity: An advantage of gold is its liquidity. Gold is universally recognised and can be easily traded across global markets, providing investors with quick access to cash when needed. This high liquidity ensures that gold can be readily converted to meet financial obligations. Incorporating gold into your investment portfolio can provide both security and liquidity, safeguarding your wealth while maintaining the ability to respond to changing financial needs.
Favourable Tax Changes: Budget 2024 has also reduced long-term capital gains tax for gold mutual funds from 20% with indexation to 12.5% without indexation. Thus, investment in gold funds have another tipping point in their favour along with the price efficiency they offer.
The key takeaway is that,
The recent global developments in the stock markets underscore the importance of diversifying investment portfolios and considering alternative assets. Gold, with its historical diversification and liquidity traits, stands out as a better investment option in the current economic landscape. As investors navigate the uncertainties of today’s markets, allocating a portion of investment portfolios to gold can provide stability and resilience.
