What is the role of gold in the investment portfolio?

Buying gold is a tradition for Indians that doesn't seem to fade ever. At least a little bit of the yellow metal, in physical or paper form, can be found in almost every Indian portfolio. Here are 5 smart things to know about investing in gold.

By ET CONTRIBUTORS | Updated: May 13, 2021, 12.05 PM IST

1. Gold acts as a diversifying investment as it has negative correlation to stocks and other financial instruments.

2. It is a hedge against inflation as typically the value of gold rises when the cost-of-living increases.

3. Gold is a crisis asset and retains its value through financial and geopolitical uncertainties.

How gold price is related to these 5 parameters

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Gold is regarded as the best safe haven asset and therefore, people buy it in periods of uncertainty, a phenomenon that clearly explains why gold prices jumped during the peak months of the pandemic last year. Even when a rally in gold comes to an end, the yellow metal continues to be of use in one's investment portfolio, as a hedge against inflation, beaten down equities etc. If the market is correcting or rallying can be determined by considering factors that push up or pull down gold prices. Here are 5 factors influencing the price of gold.

4. It is a highly liquid asset class, however, it does not provide any income.

5. There are many convenient and cost-effective ways to invest in gold through mutual funds and ETFs.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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