InvestorQ : How do I as an investor make a decision as to whether I should invest in Sovereign Gold Bonds or not?
sara Kunju made post

How do I as an investor make a decision as to whether I should invest in Sovereign Gold Bonds or not?

3 years ago

There are 3 key aspects that you need to consider before you take a call on whether to invest in sovereign gold bonds or not.

Firstly, you must remember that SGBs offer a more efficient, lucrative and economical mode of holding gold compared to physical gold. Not only are SGBs a productive asset earning interest, but they have the additional benefit of a sovereign guarantee. This is an important aspect because other modes like physical gold or even ETF gold do not carry any sovereign guarantee on repayment.

Secondly, it has been observed historically that gold tends to outperform other asset classes when there is economic flux, geopolitical uncertainty or a debasement in the value of fiat currencies. We get to see glimpses of all the three in the global economy at this point of time. One only needs to look at Syria, Afghanistan, North Korea and the political flux in Europe. Gold is regarded as a safe-haven investment in such uncertain times and hence elicits a lot of demand. An investor needs to keep this in mind. Considering the current turmoil in Middle East and West Asia as well as the economic uncertainty surround the US-China trade war, gold is one asset class that has the potential to outclass other asset classes in terms of risk adjusted returns.

Lastly, we come to the all important question of how much should you invest in gold Remember that any decision to invest in gold has to be seen within the framework of your overall portfolio mix and long term goals. Normally an exposure of 10-15% gold in the portfolio may be ideal to give the safety net to your portfolio in uncertain times. However, one needs to remember that, unlike equities, gold does not create long-term wealth. That should be the broad philosophy that should ultimately drive your gold investment decision. You can look at tweaking your overall gold holdings between these ranges depending on the macro economic situation.