Stocks, FDs are good, but experts bat for gold as optimal investment choice

As things stand now, there is no dearth of options available for the retail investor. For one, India’s stock market is booming, driven by unabated foreign capital inflows, as it stands out as one of the few bright spots in a tumultuous global landscape.

On July 26, the NSE Nifty 50 soared 97.70 points, or 0.50%, to 19,778.30, and the BSE Sensex jumped 351.49 points, or 0.53%, to 66,707.20.

Added to this, interest rates are close to peaking, and the possibility of any significant hike in fixed deposit (FD) rates in the near future is slim, making this an opportune time for investment in these schemes.

However, experts are of the view that gold is no less an excellent investment option.

Also read | FD laddering: Safety of bank deposits, with greater liquidity and interest options

Speaking to The Federal, Ravindra V Rao, VP-Head Commodity Research, Kotak Securities, said: “Gold is a must in the portfolio as the uncertainties in the global economy are here to stay. This makes gold a good diversifier as it is traditionally a hedge against uncertainty.”

Investment opportunity

As the long-term outlook on gold remains positive, experts are of the view that the recent correction in prices offers a good investment opportunity. The investment in gold can be made via jewellery, biscuits or coins, ETFs, mutual funds or sovereign bonds.

“Gold prices corrected by around 7 to 8 per cent after hitting all-time highs in the first week of May. Overall, despite corrections witnessed in the last two months, gold delivered over 8 per cent returns year-to-date (YTD – the period beginning the first day of the current year up to the current date) outperforming returns vis-a-vis all other globally-traded commodities,” Naveen Mathur, Director – Commodities and Currencies, Anand Rathi Shares and Stock Brokers, told The Federal.

“Largely owing to the US labour market witnessing no signs of a slowdown, there is a possibility that we might see gold prices correcting by another 4 to 5 per cent,” he added.

Over the years, gold has always delivered average monthly returns of more than 1 per cent when interest rate cycles have been paused or put on hold. Mathur said that this indicates that although gold might not witness new all-time highs before the end of the year, it will give positive returns, and it could continue to outperform other commodities over the next year or two.

Low profits, but low risks

Though investing in gold may not yield the same high profits as the stock market, the risks of suffering large losses are also reduced. Gold has long been regarded as a safe-haven investment, in part because its prices rise significantly during both long- and short-term stock market disasters. Also, it is a hedge against inflation, a feature that does not accompany fixed deposits.

Also read: REITs can be a good investment option; know more about tax impact and risks

“The price of gold is lower, as US yields rebound. Better-than-expected US weekly jobless claims data weighed on the bonds. Spot gold closed with a loss of 0.23 per cent at $1,972, on the possibility of a ‘higher for longer’ interest rate regime. Odds of a Fed rate hike beyond July have suddenly come alive. Apart from the rate cut notion, which is influencing yields and dollars significantly, gold presently does not have any specific factors to support it,” Praveen Singh – Associate VP, Fundamental Currencies and Commodities, Sharekhan by BNP Paribas, told The Federal.

More importantly, investing in gold can give financial security during periods of macroeconomic uncertainty and volatility. Global recessionary tendencies and geopolitical headwinds, such as the current war in Ukraine and tensions between the US and China, might mar economic recovery, and expose the country to widespread economic vulnerability.

Recent boost

“After notching a three-year high of $2,085.4 per troy ounce on May 4, 2023 ($4 shy of an all-time high), gold prices have been on a steady decline. Undoubtedly, the recent US inflation data provided a much-needed boost for the yellow metal. As of now, analysts and economists are expecting a mild recession in the US. Cooling inflation also gives the Federal Reserve the ability to cut rates when the economy slows. Though the expectations of rate cuts in 2023 have faded, gold prices might stay buoyed,” added Kotak Securities’ Rao.