Diversification Into Gold
- Since ancient civilization, from the Egyptians to the Inca, gold has held a special place of actual and symbolic value for humanity.
- Gold has moreover been used as money for exchange, as a store of value, and as valuable jewellery and other artifacts.
- Gold’s value is ultimately a social construction: it is valuable because we all agree it has been and will be in the future.
- The strategic case for gold is cantered on risk management and capital preservation. Gold offers investors a liquid asset that lacks credit risk and that provides diversification during good times and bad.
- During periods of market stress, gold is able to reduce portfolio losses by outperforming most other assets. It is also able to protect investors’ purchasing power through its ability to hedge against high inflation and currency devaluation.
- Risks to gold prices comes from the fact it has very little actual use other than perceived value. Storage costs can be a disincentive for very large investors.
- The Indian prices of gold can be broken down into three components
1. International prices of gold.
2. USD INR fluctuation (depreciation or the rupee. makes gold more attractive)
3. Custom Duties and other taxes.

The above chart provides the USD Prices of gold over the last 25 years. One can see gold recorded a significant jump post the 2008 crisis and peaked by 2012 as the crisis eased.
Subsequently we saw a very flat movement of gold prices till 2020.
Currently, we are seeing an uptrend given the uncertainty from the corvid crisis.
One of the key factors for the movement is also linked to the debasement of currency which primarily means that most central banks are in the process of increasing the currency to stabilize their economies.
While initially it provides the required support to the system over time as economic activity picks up most prices start readjusting to factor in the easy money in the system. Hence, investors resort to using gold in their portfolios to provide a hedge to the money debasement risks.

4. Mediums to own gold as a financial investment
Given that holding physical gold is cumbersome and SGB has a long holding period the ETF becomes the preferred route to hold gold as a financial investment.
Performance of Gold ETF in %

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