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Gold has been considered a valuable asset for centuries now. In the modern world too, gold offers many advantages to investors as a strategic asset.
At the recently concluded Cafemutual Passives Conference (CPC) 2024, Juan Carlos Artigas, Head of Research, World Gold Council shed light on the current trends in the international gold market and the benefits of adding gold in the investment portfolio. Here are the key highlights of the session:
Benefits of gold as a strategic asset
Gold offers three advantages as a strategic asset: Returns, diversification and liquidity.
- Returns: Gold has outperformed many asset classes in the last few years. Gold has provided a CAGR of about 8% in the last 15 years and has outperformed Indian government bonds, corporate bonds and the commodity market during this period.
- Risk diversification: Gold has an overall low correlation with the stock market. In fact, when the stock market falls, gold prices go up. This makes gold a great addition to provide risk diversification to an investor’s investment portfolio.
- Liquidity: Gold is easily sellable which makes it a very liquid asset. This allows an investor to exit the gold market quickly when in need of liquidity.
An allocation of 5% to 15% to gold in an investment portfolio can help to get better risk-adjusted returns.
Recent market trends
Gold prices have been reaching new highs in recent times. However, like equity, it is important to add gold carefully in the portfolio in a balance proportion. The reason for increase in the price of gold is due to an increase in demand from central banks and investors in Asia.
Interest rates are not likely to increase in the near future. In fact, they are more likely to decrease, which will be good for gold. On the other hand, the rising prices may also cause a decrease in the demand for gold.
However, the demand for gold from banks is still high. There is also a potential for growth in the gold market in Europe and America. At the same time, Asian investors are also showing appetite for purchasing gold. Hence, this is a good time to invest in gold.
You can watch the full session on YouTube here.
