In 2019, gold had an excellent annualized return of 24%. In fact, 2020 also saw the yellow metal outperform most other assets, since investors turned to it during the COVID-19 pandemic. Now, 2021 is likely to see high inflation, which makes gold a smart investment choice again. This is simple because it can act as a hedge against both inflation and deflation alike. This is why gold continues to have value during testing times and to diversify portfolios.
However, it is not quite possible to see into future and predict the prices. But, given the historical performance, it is practical to think about gold investment this year. In fact, experts have found that gold prices are set to increase in 2021 and might cross ₹62,000 per 10 grams. Take a look at why else investing in gold could be a smart choice in the new decade.
Fund Allocation
India is the largest gold consuming nation in the world, surpassing China and the US. The demand is expected to increase further in 2021, since we are looking at the metal as an investment class to allocate funds. This is because sovereign gold funds tend to offer a fixed return of 2.5% on an annual basis, regardless of market performance. This is quite crucial at the moment, since retail inflation has already jumped to 5.03% in February 2021, from 4.06% in January. Further, rise in food and fuel prices are predicted, which can be handled with appropriate fund investments.
High Liquidity
There is a rising trajectory of COVID-19 cases in India in 2021 too. Therefore, it is important to keep yourself financially prepared to face any unforeseen situation. Gold can be extremely helpful, since it is known for its high liquidity. Gold funds can be readily converted into cash to cater to medical emergencies. In fact, gold coins, bars and jewellery can also be used for several other purposes, which might have been unfulfilled during the severe pandemic.
Wealth Preservation
It has been one of the most obvious symbols of well-being for centuries. The value of paper dominated currencies change and might shrink over time. However, gold will always be able to fulfil a few of your wishes even in the future. In fact, its prices might rise with an increase in living costs, unlike paper currency, the value of which could depreciate. But, storing the metal digitally through online SIP investment offers an easy way to invest in the metal. However, make sure to understand both risk and reward beforehand.
Portfolio Diversification
This might be the year in which investors will compensate for the financial strain of 2020. One good way is to avoid putting all your eggs in one basket. This will help you reach your desired financial goals, while minimising risk. Gold might not ensure high-end returns but is an effective way to improve your portfolio spread. Therefore, including gold in your investment strategy would be a great idea in 2021.
Gold is an investment option worth considering. Since time immemorial, it has safeguarded against inflation while combining gold with bonds reduces overall investment risk. Talk to an expert to make the most of the gold funds.
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