Features of Gold – Returns, Hedging, Valuation, Liquidity & more

Here, we will discuss about various features of gold & what makes gold a better commodity for investment.

Despite being a precious metal in terms of fashion jewelry, gold also belongs to an asset class for investment.

It has an exceptional demand in the market that seems to increase in the coming years. It is because of its indestructible nature that retains investors’ attention.


What Makes Gold Unique? or Features of Gold

Lets dig deep in to various features of gold which make it an efficient investment compared to other commodities.

But, even after being a jewelry item, gold is not a cash-generating asset unless someone is lending it in the traditional market.

Also, being a component of the asset class, gold itself isn’t an asset like shares and bonds Ultimately, gold is a metal and thereby belongs to a commodity.

Its industrial utility classifies gold as a commodity in a minuscule part. It is because of the value it holds, unlike other metals, including steel and copper.


Gold provide Long Term Returns

Nevertheless, the demand and supply of gold are never-ending in the market. It is indestructible, and that’s why the chances of it vanishing seem ground to zero even in the future.

Moreover, the increasing dollar value, the demand from international banks, and its scarce distribution contribute to uplifting its price in the trade market.

In turn, the forecasts and predictions are in favor of the investors that ensures continuous growth with time.

In such a case, the long-term return can be profitable either near to the original price or in double digits. It preserves and grows capital over the long-term tenure of investment.


Find more details about Gold Investment here

Learn about Gold InvestmentGold vs Other Asset Classes
History of GoldGold Rate Forecast
Gold Rate TodayGold Rate Calculator
Gold Investment CalculatorGold Rate Comparison
Gold Investment Comparison

Gold provides Risk-Adjusted Returns

Investment in gold improves the investor’s portfolio and reduces the risk in different parameters.

One such is risk-adjusted returns, which as mentioned above, are capable of acting as a support system when the market goes down.

Moreover, this is more beneficial in the traditional local market, where gold holds an unbeatable value in the eyes of the buyer because it is a fixed deposit and ensures security.

This investment in gold as jewelry has delivered annual returns of nearly 9% over the past decade.

It proves that gold performs exceptionally well in the Indian market in comparison to other commodities.

It has also surpassed the average annual return in India’s Consumer Price Index since 1981.


Gold can be Hedge against Inflation

When the market experiences significant highs and lows, gold tends to hold its value without being bothered by the changes. It provides a hedge against potential risks.

While it improves the portfolio, it also reduces risk, among which is the hedge against inflation. It delivers resistant behavior in unfavorable situations.

Instead, it increases its price at an alarming rate.


Know in Detail about Various Types of Gold Investment here

Digital Gold InvestmentGold Coins Investment
Gold Bars InvestmentGold ETF Investment
Gold Jewelry InvestmentGold Funds Investment
Gold Monetization Scheme InvestmentSovereign Gold Bond Investment

Gold can Combat Deflation

While maintaining itself in a turbulent market undergoing inflation, gold also behaves well during deflation. That is, when the market is experiencing a downfall, gold stabilizes.


Gold Valuation

Unlike other metals, gold also has a unique valuation methodology. It includes strategic and tactical valuation that covers the demand and supply economically as well as its effect on performance.

Strategic Valuation

It considers two contradictory trends in the market:

Economic Growth

When the nation as a whole is experiencing a boost in the consumption of jewelry and information technology services, ensuring a long-term return in investment, the prices of gold tend to grow. Economic growth leads to an increase in the prices of gold.

Downturns

On the other hand, when the market is under crises or unstable and experiencing losses, even then, gold retains its value.

It is not affected by the external boundaries of damage where other assets are prone to carry potential risks and uncertainties for investors.

Tactical Valuation

Tactic or statistical valuation considers two other metals of competition in terms of demand, consumption, price, and performance. These are:

Opportunity Costs

These include the demand by investors and their potential to invest in other assets and giving preferences.

Here, a comparison takes place between gold and other asset classes. Their functioning in the market determines the attention towards gold in terms of price.

Momentum

A typical movement in the trade graph, representing capital flows, performance concerning the opening and closing price, positioning, sidewards or up-down price transaction, so on determines the gold’s performance in the market.


Gold provides Liquidity

From a global perspective, gold acts as a far more valuable entity asset than in India. Some experts also consider it as a currency in the financial trade.

The gold market overall is highly liquid and generates revenue bigger than the Indian market alone, stocks, and bonds combined.

From the latest 2019 data, gold underwent a benefit to all investors. It estimated as follows in the global exchange:

  • It averaged INR 10.3 trillion daily.
  • Over-the-counter derivates and spots contracts stood at INR 5.5 trillion and
  • Gold futures stood at INR 4.6 trillion.

Apart from this, gold showed an outstanding performance in the Indian ETFs, creating an average of INR 18 million daily.

It creates an environment of buying and selling gold at any given time in the market.


Gold is a Strategic Investment Tool

Gold is a tangible asset and depends on factors that derivate its price and performance in the market.

While some consider it as a complementary for trading other stocks and bonds, it ensures growth in the portfolio and reduces risks.

It diversifies the market in a way that protects other assets held by investors during crises. Investors primarily invest in gold due to the following factors:

Emerging Market

Economic growth affects the price and performance of gold. The expanding consumer base leads to an increase in demand, and therefore the prices keep growing.

Gold ETFs

Exchange-traded funds eased access to the market and noticed efficiency in terms of transaction and storage.

Global Crises

During global crises, gold acts as a support system or haven for investors. It does not lose its value and acts as a hedge against risk and inflation.

Monetary Policies

Interest depends on the time and value of gold, so some policies determine the long-term returns of gold.

Central Bank Demand

The distributor and manager of gold are different reserves. These regulate the trade and transactions.

Effective Portfolio Diversifier

As mentioned above, investment in gold is a great way to diversify the portfolio. Adding 5-10% of gold investment in the portfolio strengthens the possibility of high risk-adjusted returns.

It promotes investment in two categories, that is, paper gold and physical gold that allows digital investment, trade market investment, fixed deposits, and many more that in all ways acts as a boon to the investor.

Commodity Investments

Gold has outstandingly performed in the commodity market in the past decade. The indices achieved by gold investment are higher than other commodity assets.

It has also delivered high returns annually to industrial and individual investors.


Conclusion: Features of Gold

The factors that differentiate gold from other commodities are liquidity, long-term return, investors, dollar value, demand from international and Central Bank, hedge against inflation, portfolio diversification, and so on.

These features, in comparison to other components of commodity, are not reliable and do not produce outcomes like gold.

Gold, being an indestructible entity, ensures that the continuity in demand and rise in prices that gains attention for investment.

Other precious metals that count in commodities do not reflect benefits in the line of gold but are similarly potential to do so.

For example, silver is another commodity component and second precious metal. Experts say that both perform hand in hand in the market, indicating that if there is an increase in the prices of gold, the rate of silver will also increase.

But, it does not ensure the same features mentioned above.


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