To invest or not in gold is a tough decision. Especially in times of economic slowdown, investing in gold may or may not prove to be financially beneficial.
With recent fears of a recession looming on the nation’s head, it’s time to make some wise decisions. It’s time to recession-proof your investment portfolios. Also, gold has been touted as a blooming asset in times of recession.
But, these old beliefs must be re-evaluated. Is gold as recession-proof as it is believed to be? Does gold really provide protection against inflation? It’s time for ‘Sach ka Saamna!’.
Let’s discuss 4 reasons in favor of gold and 4 reasons against investing in gold.
- 1 In favor of investing in gold:
- 2 1. Gold will probably keep up with Inflation
- 3 2. Amount of gold mined is going down as compared to population growth
- 4 3. Gold will always be a Commodity
- 5 4. Short-term Profitable Investment
- 6 The Case against investing in Gold:
- 7 1. Gold is not a tool against Inflation
- 8 2. Gold may not necessarily be in demand during the recession
- 9 3. May not be a valuable commodity, in fact, may not even be a commodity
- 10 4. Not preferable for short-term trading
- 11 Conclusion: Yes or No to Investing in Gold
- 12 Advantages of investing in gold:
- 13 Disadvantages of investing in gold:
In favor of investing in gold:
1. Gold will probably keep up with Inflation
Most financial experts believe that regardless of the consistent inflation surrounding us, gold will is one commodity that will always keep up with inflation since it is a rare and scarce asset.
In fact, the fact that there is a limited gold present on the Earth is its biggest strength.
In the long run, currency, for instance, cannot be exhausted. This is because the government can print more if the currency goes scarce.
Therefore, investors consider gold as a stable and steady source of investment. Even if it isn’t able to keep up with inflation, it will most definitely stay a rare commodity to own and sell.
2. Amount of gold mined is going down as compared to population growth
Population growth: that is whole other debate in India.
But let’s not divert from the topic.
Recently, the amount of gold being mined has gone down in relation to the growth of population, pointing to its scarcity.
If this continues, which will because the population is not slowing down anytime soon in India and gold is not growing on trees, the following thing will happen:
An increasing amount of money will be chasing a limited supply of gold. So, guess what?
Gold will be enjoying high prices. In fact, very high prices.
3. Gold will always be a Commodity
Okay, so those who don’t believe in an economic slowdown or recession and are looking for another concrete reason to invest in gold, here’s one: gold will always stay a commodity.
Regardless of financial conditions, gold will always be in demand for luxurious items like jewelry, watches , and artifacts.
Gold has other scientific uses in technological equipment and devices like mobile phones where its conducting properties are highly valued.
So don’t worry, gold is not likely to go out of demand anytime soon.
4. Short-term Profitable Investment
People who are into short-term trading and investing earn big-time with gold.
By purchasing gold at low prices and then selling it when it is at a high, people make some easy cash. You can too!
Also, the fact that this is not done by a large number of people can give you an edge in gold selling.
But be careful before you go on a buying spree. Do not, I repeat, do not put all your money into it.
The Case against investing in Gold:
1. Gold is not a tool against Inflation
Gold may or may not provide protection against inflation. It is important to keep in mind that gold is not a magical commodity that will do ‘abra ka dabra’ and inflation will vanish.
Similar to other assets, it has its share of ups and downs.
In fact, gold could be better depicted as a crisis investment during economic slowdowns, because it tends to perform better than any other assets during the recession.
2. Gold may not necessarily be in demand during the recession
During the recession, it is very likely that gold won’t be in major demand.
Simply because during financially thin times, people struggle to even afford basic amenities like food and water.
Therefore, for obvious reasons, gold will suffer a cut in demand.
3. May not be a valuable commodity, in fact, may not even be a commodity
There are many substitutes coming up for gold. These substitutes look almost similar and have similar sturdiness properties.
Other cheap and natural materials have come up as substitutes.
For instance, there is a stone which is literally named ‘Fool’s Gold’!
And while it is believed that gold will always stay a viable investment option, you must know that it would not always necessarily stay the ‘best’ investment.
There are better places to invest your money.
What’s more, gold may not even stay a commodity. People prefer other things in place of it. Towards the cheaper side, things like fool’s gold, silver etc. and towards the higher side diamonds.
4. Not preferable for short-term trading
For people who prefer buying gold during times of recession and then selling it during financial peaks, let me tell you that gold might not be the most preferred investment for short-term trading.
In fact, you may end with a far lesser return than you would have if you would have instead preferred stocks.
Hence, make your decision wisely.
Opt for stocks and earn safe, earn more.
So Yes or No to Purchasing Gold?
Conclusion: Yes or No to Investing in Gold
Well, I am sorry to inform you but there is no concrete answer to this.
To each its own. You have to decide for yourself whether you want to incorporate gold in your investment portfolio or not.
As we saw above, gold has its own share of advantages and disadvantages.
Let’s review these points:
Advantages of investing in gold:
- Gold will probably keep up with Inflation
- Amount of gold mined is going down as compared to population growth
- Gold will always be a Commodity
- Short-term Profitable Investment
Disadvantages of investing in gold:
- Gold is not a tool against Inflation
- Gold may not necessarily be in demand during recession
- May not be a valuable commodity, in fact, may not even be a commodity
- Not preferable for short-term trading
Also, keep in mind that diversity in your portfolio should be your utmost priority.
I would suggest that you invest 5-10% of your savings in gold and some other savings in stocks. Manage your finances smartly and you’ll never have to face significant losses.
Keep saving with Bachat at your side!
Recession means job losses, low demand, and liquidity crisis tricking. The buying power reduces as the prices start hitting the sky. Start investing now before recession hits.
Don’t let the news around bother you. Start saving for an emergency fund so that you have money when in need. Do not stop your SIP’s.
Start creating multiple income streams, if you lose your job you still have money coming from other directions.
Keep a check on what you buy – avoid unnecessary expenses.
Keep a check on the stock market. The stock market is considered to be the best indicator of a recession is about to hit.
Job Market – companies start laying off employees in a large amount.
Gold can be a good option for investment. Gold is one thing that people always start chasing when the currency prices start dropping. The demand for gold is always there.
However, there can be disadvantages. Read the blog to find out…