Will gold deliver double digit returns this year? | Should you invest in gold now?

Will gold deliver double digit returns this year? | Should you invest in gold now?

[Music] gold is having a golden run over the last 1 month as of 19th April it has gone up by about 12% while nifty 50 has gained just 1.5% now over the 6 and 3 months also it’s ahead of the nifty 50 by about 15% and 9% and although it has lagged nifty50 in onee returns it has given it a tough fight now The Shining performance by the yellow metal has put it in focus of almost every investor and many are wondering if they should invest in gold now this video is about that and more while we will try to answer this question we will answer an even more important question and that is what should be the strategy for gold in your portfolio hello and welcome to ET money’s YouTube channel in this video we will talk about three things first what moves gold prices and what factors are responsible for the current rally in Gold this can help you assess where goal is headed number two what impact does gold have on your portfolio’s performance and number three what is the best approach to investing in gold should you do lumpsum have an sip or buy it tactically let me also tell you beforehand what this video doesn’t have we are not going to talk about different ways you can invest in gold if you would like to learn about that we have a video for that on another YouTube channel 5 minute Finance you can watch this video for more information and also subscribe to this YouTube channel and as you may already know we also have a Hindi Channel I’ve included the links of the 5 minute finance and the Hindi channels in the description so do take a look okay let’s start with understanding what moves gold price is and which of the factors are responsible for the current bull [Music] run as someone who wants to have gold as part of their portfolio it’s important for you to understand what moves gold prices and which of the factors are in play at the moment this can help you assess where gold is headed now while a number of factors can have a bearing on the gold the most prominent ones are number one supply and demand number two inflation and interest rates number three US dollar rates and number fourth geopolitical factors let’s understand these factors in Greater detail and also try to understand which ones are responsible for the ongoing Bull Run in Gold let’s start with the supply and demand Factor first for this we looked at well the demand and supply of gold now this data is available on the world gold cones website so you can check it anytime as well as you can see the demand for gold has gone up from about 4,000 tons in 2021 to close to 4,400 tons in 2023 now the demand for gold majorly originates from four Avenues jewelry fabrication technology Investments and central banks of these while jewelry fabrication is the largest contributor it’s the demand from the central banks that have shown the biggest jump rising from 450 tons to 1,37 tons over the last 3 years now the demand from the rest of the Avenues have remained more or less constant now the rising demand from central banks is a reflection of the tough geopolitical conditions about which we will talk shortly now on the supply side while there have not been much changes at the aggregate level the supply has been more than adequate to absorb demand for instance the total demand in 2023 was 4,448 tons and the total Supply was 4899 tons so in aggregate the supply demand Trends appear balanced all right the next factor is inflation and interest rates a rising inflation often fuels a demand for gold as it is seen as a hedge against inflation however the story changes when the interest rates go up gold prices are believed to have a negative correlation with interest rates what that means is that when interest rates rise gold prices fall now another way to see this is that when investors can make higher returns in fixed income they tend to move out of gold now between 2022 and 2024 the US interest rates Rose from 1% to 5.5% now surprisingly during this time gold prices also went up so it seems some other stronger Tailwinds pushed gold prices upwards now lately the US F chairman hinted the delayed rate Cuts amid High inflation this should have dented gold prices but it didn’t happen another factor that affects gold prices is the US dollar because International gold is denominated in dollars any weakness in the dollar results in higher gold prices but if you see the recent movement of the US dollar Index it has actually moved up so theoretically the gold prices should have fallen in reality they have also raced so what’s going on well the answer lies in the remaining factor that influences gold prices which is geopolitical factors gold benefits from geopolitical tensions as the trust deficit in the global economy increases now the last couple of years two major Wars have broken out between Russia Ukraine and more recently between Israel and Hamas the Israel Hamas War seems to be escalating with new actors like Iran getting into the frey these political tensions have also resulted in the central banks increasing their gold purchases the Russian and Chinese central banks are especially at the Forefront of this combined with this are the upcoming elections in the US and the increasing Chinese aggression towards thawan now in the absence of other stimuli it seems like that geopolitical tensions are the major driver of the ongoing gold rally if the tension escalates so will gold prices but it appears to be more a sentiment driven rally than a fundamentals driven one so as a gold investor you must keep this in mind while at the moment it seems a remote possibility but any stalman deescalation or truce can quickly puncher the gold rally and since other drivers of gold Supply demand interest rates and the USD movement don’t seem to be conducive to gold prices currently that can make the fall even steeper so it may be time to be cautious now this brings us to the next section how gold affects your portfolio’s performance but before that let me request you to subscribe to this channel if you aren’t already a subscriber and don’t forget to click on the Bell icon so you never miss a video from us and please do like share and comment so that this video reaches far and wide and benefits many more [Music] investors okay the question that we will now try to answer is how gold allocation affects your portfolio’s performance now many investment advisers recommend a gold allocation of about 10% in the portfolio they say that gold can be hedged against inflation and often when equity and debt fail to perform gold does well but they also caution against too much gold in the portfolio as it is an unproductive asset it has limited practical usages as such and is just holded for its perceived value and many of us would remember Warren Buffet’s famous Cod on gold so while the run-ups in the gold continue to surprise the more logical investors the fundamental nature of gold itself makes it difficult for them to see it as an investment that’s why perhaps the middle path is to allocate 10% or so in Gold so that you don’t experience for more neither do you ruin your portfolio if gold doesn’t work so the question of how gold impacts your portfolio performance has a sub question to if it does then how much gold should you have in your portfolio let’s foresee the impact of more acceptable 10% allocation to gold on a portfolio let’s compare the performance of a 6040 portfolio with that of a 60310 portfolio 6040 means 60% equity and 40% debt and 60310 means 60% Equity 30% debt and 10% gold now for Equity we have considered the nifty50 TR for debt ISAC Sovereign Bond index and for gold nepon India gold ETF now sips of 20,000 were done in these portfolios every month from April 2014 to April 2024 the portfolios were rebalanced in April each year to restore the asset allocation now the portfolio that had 10% gold did better than the portfolio that had only stocks and debt the 60310 portfolio accumulated 45.81 lakhs and the 6040 portfolio yielded a corpus of 44.5 1 lakh but this is half the picture we also need to check the draw Downs in these portfolios to see if having gold has any any tangible benefit in terms of downside protection for our purposes a draw down is a fall in the portfolio value from its previous High the greater the fall the greater the draw down the table shows the top 10 draw Downs of the 60/40 portfolio and the corresponding draw Downs in the 6031 portfolio for example in 2020 am made the covid-19 LED crash the 6040 portfolio fell by over 133% from its previous high on the other hand the 60310 portfolio fell less than by 12% in rupee terms the 6040 portfolio lost 2.45 lakh on the other hand the 60310 portfolio lost about 2.19 lakh that’s a difference of over 26,000 and not just this on most occasion except one the 60310 portfolio did better than the 6040 portfolio not only did this portfolio deliver better overall returns but it also contained downsides better this suggest that there is indeed a case for gold allocation in a port fio but what if we increase the gold allocation to say 20% well the end value is even higher with the 60 2020 portfolio as against the 45.8 lakh generated in the 60310 portfolio the 60220 portfolio delivered a corpus of over 47 lakh but what about the draw Downs well the draw Downs also were less in all cases except one in the 60 2020 portfolio if we again take the example of the covid-19 LED crash the 6 6310 portfolio lost 2.19 lakh from its previous high on the other hand the 60220 portfolio lost just 1.93 lakh that’s about 26,000 Less in percentage terms the 60310 portfolio suffered a draw down of about 12% the 60220 portfolio limited its draw down to 10.3% so more gold in the portfolio seems to have improved the portfolio performance but if gold can be a worthy component in portfolio why not not have more of it maybe a 30 or even 50% allocation that’s a good question and we will try to answer it soon but before that let’s move to the next section how you should invest in gold so what’s the best way to invest in gold you can invest in gold via lumsum or sips or tactically let’s assess each of these methods as far as sip versus lumpsum returns are concerned sip seem to have edged as of now they have done better than lumsum across three 7 and 10 year periods the other point to be noticed that in absolute terms the returns appear to be quite handsome but both these types of returns are heavily influenced by the recent runup in Gold over the last couple of years if we see the 10e returns across periods the situation changes now lumsum have done better than sips in four out of six cases but the more notable thing is the returns have significantly tapered there have been 10year periods like 2008 to 2018 and 2009 to 2019 where sips return just 5% and 3.4% respectively even lumsum haven’t done very well with returns of 9% and 6.5% only this pattern repeats itself through the other 10-year periods Also let’s take a look at the average rolling returns from gold to get a better idea of performance across periods to find average rolling returns all return instances over a period were averaged for instance if it’s a fiveyear rolling returns then all 5year periods are taken and their returns are average so in essence rolling returns are the equivalent of the average returns and investor would have got had he invested for any specified period between two dates the same pattern repeats here across long-term periods like five 7 and 10 years Gold’s performance has been rather decimal with returns ranging from 7 to 8% only that’s a far cry from what gold has delivered lately now all this suggest that gold has become the hero that is today quite late a look at nepon India gold ETFs nav chart can help understand this as seen in the chart gold rallied from 2008 to 2012 it was then range bound from 2012 to 2019 and since 201920 it has found fresh momentum so since for a very long time between 2012 and 2019 gold was range bound the returns from this period were rather capped of course there have been Rises and falls during this time but for someone who invested at the start of 2012 and stayed invested until 2019 it might have been a huge opportunity cost but what explains this well the answer lies in what we discussed at the start of the video the drivers of gold prices most of the drivers are related to economic or geopolitical factors there are supply and demand factors also but gold tends to react more sharply to economic and geopolitical factors so it wouldn’t be wrong to say that gold may be a hedge against inflation but is more a hedge against uncertainty be it economic or political and that’s what gives it relevance when the world order seems to be crumbling the obvious thing for both lay people and central banks to do is to seek shelter in gold and this is not a recent phenomena since the start of human civilization gold has been held in high regards and whether it’s logical or not in all likelihood gold will continue to enjoy that status given that its relevance is better highlighted during crisis as an investment gold will also remain more of a tactical play rather than a Buy and Hold asset so to profit from gold you will need to keep an eye on its drivers and invest and exit gold based on them and this ansers the question we mentioned a little earlier why not have more gold in your portfolio you can of course have more gold but to get more out of it you should be able to enter and exit it tactically of course doing so is not possible for the average investor but we’ve got to cover let’s see [Music] how to get the best results out of gold we concluded that you must be able to enter and exit it tactically but doing so may not be possible for a vast majority of investors Ed Money genius comes to the rescue with Ed Money genius you get personalized multi-asset investment plans for your short medium and long-term goals that are built after understanding your risk profile gold is an asset class apart from equity and debt in these plans now when to allocate to it and when not to have an exposure in it is decided based on multiple factors as we discussed in this video earlier how inflation is playing out across the globe how interest rates are moving globally and geopolitical factors have a big impact on Gold’s returns now genius looks at all these drivers of gold prices and a lot more to decide whether at any given time does it make sense to have gold in the portfolio and if it does how much now this decision is not based on someone’s opinion it is solely Based on data and the intelligence of Genius which is built in a way that it catches early signals through data and converts them into insights for allocation decisions now is there data to prove that it has done this effectively of course there is However unfortunately we are not allowed per regulation to talk about specific instances when gold entered added to decreased allocation or completely exited but since February 2022 when we made genius available to everyone genius investors who are investing towards their long-term goals have experienced how tactical goal allocation Works to their advantage they’ve held gold for about 50% % of days since February 2022 however only around 20% of the days their gold allocation went Beyond 20% moreover there were another 50% odd days when their gold allocation was Zero result has been that their long-term Equity portfolios have seen a boost in returns while having lesser ups and downs but remember genus is not a magical pill it increases your chances to being able to capture emerging opportunities in gold and that can make an impact on your portfolio lastly this information about genius is only for the sole purpose of educating about one of the ways that retail investors can practice tactical allocation and not intended to highlight superiority of genius and this is what we had for today I hope you found it video useful and if you did please share it with your friends and family I’ll be back soon with another video till then take care mutual fund Investments are subject to Market risks read all scheme related documents carefully

Gold prices have been on the rise lately. As of April 19, 2024, gold’s one-month returns stand at a handsome 12%. Over the last six months, gold has generated about 22%, while the Sensex has returned 13%. Given this spectacular performance by the yellow metal, many would like to know if they should invest in gold now. In this video, we go a step further and talk about the strategy for gold in your portfolio.

This video has 3 parts. The first is on what drives gold prices. By understanding these factors, you can assess where gold prices may be headed at a moment. The second section is on how gold impacts your portfolio performance. And a related question that we try to deal with in this section is how much gold you should have in your portfolio. The third section is about how you should invest in gold: lump sums, SIPs or tactically. In short, this video will provide you with all the information you need to invest successfully in gold. But do watch it completely to get the most out of it.

Link to the gold video on 5-Minute Finance: https://www.youtube.com/watch?v=-Qzs6Ntu-Fc

Chapters

00:00 Introduction
01:48 What moves gold prices?
06:25 How gold affects portfolio performance
10:40 How to invest in gold?
14:24 ET Money Genius