What all should you know before considering an investment in gold?

Are you looking to include an investment in Gold, as a part of your asset portfolio?

When compared to the various market investments, Gold gains the highest volume in terms of market activity. We can liquidate this shiny golden resource into cash any day, anytime. Investing in gold may sound pretty simple and lucrative. However before the gold mania takes you on, let us address a few queries that you as an investor must find answers to.

Why should you invest in gold?

There could be innumerable reasons behind your will to spend money on purchasing gold. Investment could be a major one. Let us find out why you should consider investing in gold.

Portfolio Diversification:

Unlike any alternative investment such as bonds or shares, the price of gold does not usually move in the same direction. It can polish your overall returns, when the same from other portfolio investments are sinking. However, investors should be cautious before too much money in purchase of this lustrous asset.

Well, the significant part here is knowing how to fit this part of investment into your financial portfolio. This is not something that should overly concern you. Always remember applying the thumb rule in this scenario. Try not to include more than 5 percent of any asset into your portfolio.

Gold can act as a shield against a weak currency:

Worldwide, gold is considered to be quite a valuable resource. Being a prized possession, gold value does not actually move in the same direction as any other currency.What does this indicate?

That even in the times of inflation, or when any of the bear market forces are trying to pull the dollar value down, gold will be one among those portfolio assets that will preserve its value and purchasing power.

What factors can drive the gold prices up?

According to investment experts, surging gold prices can be attributed to the following factors

Investors to anticipate soaring Inflation:

As mentioned earlier, gold acts as a safe hedge against inflation. This is one reason why investors look for piling gold assets, at times when they predict high inflation.

Collapsing currency value:

This is when people foresee the value of their currency (corresponding to other currencies and assets) to weaken. As a result of this, they end up purchasing gold.

Socio-Political Volatility:

We can understand this by any kind of instability experienced by the citizens of any particular country that is undergoing some crisis. This can include any social and political emergency situations like a political confrontation, or a terrorist act, or a state of war. These kinds of circumstances can also be the explanation to why people accumulate gold.

A plunge in the stock valuation:

In situations of market collapsing, investors look at purchasing gold just to be on the safer end. As a result, gold prices tend to surge.

What factors can drive the gold prices down?

Let us find out a few reasons behind descending gold prices.

When fearing low inflation:

In times of a low inflation, there is a dwindling demand for this appreciated asset. This is because at this time, people are not as bothered about the deteriorating value of their money.

A rising market for stocks and/or bonds:

Usually at a time when the securities market are performing well or are anticipated to do so, investors might be driven towards putting their money in the same. For this, they will be driven to pitch their gold stocks. Rather, they prefer to put their money into more profitable investments of the moment that is, the securities markets.

Concluding this discussion, always remember to discuss your financial plans with your advisor to ensure that it fits into your complete portfolio. Be sure you do this before investing your hard-earned money in any kind of gold assets.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in