GOLD: PORTFOLIO SAVER

GOLD

A.Vijay

Xavier Institute of Social Service

BHARTI AXA
GOLD: PORTFOLIO SAVER 2

Abstract

Gold has been a highly valued metal throughout human history, serving multifaceted roles that span

cultural, economic, and financial spheres. This abstract examines gold's enduring significance,

particularly focusing on its cultural importance in India and its role as a portfolio saver in modern finance.

Gold's dual nature as both a culturally significant asset and a reliable financial instrument

underscores its unique position in the global economy. Its cultural resonance in India and its

practical benefits as a hedge against economic uncertainty make gold an indispensable

component of both personal and institutional investment strategies. This enduring appeal ensures

that gold remains a key asset for wealth preservation and risk management in diverse financial

portfolios.
GOLD: PORTFOLIO SAVER 3

GOLD

Gold has long been highly valued in India for several reasons, and its status as a "portfolio saver"

is tied to its financial attributes and cultural significance.

GOLD: Preferred by Indians

There are 4 major reasons why Indians prefer Gold as an investment option and why it is

called as portfolio saver-

1. Cultural Significance

 Historical and Religious Importance: Gold has been a part of Indian culture

and tradition for centuries. It is considered auspicious and is often used in

religious ceremonies, weddings, and festivals like Diwali and Akshaya Tritiya.

 Status Symbol: Owning gold is often seen as a sign of wealth and status. It is a

traditional gift in weddings and family gatherings, symbolizing prosperity and

good fortune.

 Traditional Investment: Gold jewelry is not only worn but also passed down

through generations as a form of inheritance. This tradition reinforces its value as

a long-term investment.

2. Financial Reasons

 Hedge against Inflation: Gold is often viewed as a safeguard against inflation.

As the cost of living rises, the value of gold tends to increase, preserving

purchasing power.

 Currency Depreciation Protection: In times of currency volatility, gold acts as a

stable asset. For Indian investors, gold can provide a hedge against the

depreciation of the Indian rupee.

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 Diversification: Gold is an effective way to diversify an investment portfolio. Its

price movements often have a low correlation with other asset classes like stocks

and bonds, which helps reduce overall portfolio risk.

 Liquidity: Gold is highly liquid, meaning it can be easily bought and sold in

markets around the world. This makes it a convenient asset to hold and trade.

3. Safe Haven Asset

 Economic and Political Stability: During times of economic or political

uncertainty, gold is seen as a safe haven. Its value often rises when confidence in

government or financial systems declines.

 Crisis Commodity: Gold retains its value during financial crises. When other

investments may lose value, gold often maintains or increases its worth, providing

stability to investors.

4. Portfolio Saver

Gold's role as a "portfolio saver" stems from its ability to preserve wealth and protect

against losses in other investments. Its unique properties make it a key component in

managing financial risk:

 Low Correlation with Other Assets: Gold's price often moves independently of

other financial assets. This helps in balancing the risk and return in a diversified

portfolio.

 Inflation Hedge: Over long periods, gold has maintained its value relative to

inflation, protecting investors' purchasing power.

 Crisis Hedge: In times of geopolitical or economic turmoil, gold prices generally

rise, providing a counterbalance to losses in other parts of a portfolio.

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HISTORY OF GOLD PRICE FROM 2000-2024:

YEARS Annual Gold Rate in India(INR/ Year) Percentage change

2024(April) 71414 12.99147192
2023 63203 14.87903739
2022 55017 14.3828354
2021 48099 -4.091643237
2020 50151 28.23718932
2019 39108 24.58347934
2018 31391 7.665660584
2017 29156 6.234286755
2016 27445 10.08383137
2015 24931 -6.635958507
2014 26703 -6.048131729
2013 28422 -7.89720989
2012 30859 12.91668191
2011 27329 31.84581243
2010 20728 24.22390028
2009 16686 22.42112986
2008 13630 28.60917154
2007 10598 14.38747976
2006 9265 21.3013878
2005 7638 21.10353575
2004 6307 12.625
2003 5600 12.2244489
2002 4990 16.04651163
2001 4300 -2.272727273
2000 4400 NA
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Major historical events that impacted the gold price

Here's an overview of some major historical events that have affected the price of gold:

 COVID-19 pandemic (2020): The COVID-19 pandemic led to widespread economic uncertainty
and market volatility. Investors sought safe-haven assets like gold to hedge against the economic
fallout and stock market declines. This surge in demand drove gold prices to record highs in 2020,
surpassing $2,000 per ounce.
 Russia-Ukraine conflict (2014): Geopolitical tensions, such as the conflict between Russia and
Ukraine, can drive investors towards safe-haven assets. During the Russia-Ukraine conflict, gold
prices experienced upward pressure due to increased geopolitical uncertainty and risk aversion.
 Inflationary pressures: As gold is viewed as a hedge against inflation, historical periods of high
inflation, such as the 1970s, saw significant increases in the price of gold as investors sought to
preserve their wealth.
 Global financial crises: Major financial crises can trigger a flight to safety, with investors flocking
to assets perceived as safe havens, including gold. During the 2008 Financial Crisis, gold prices shot
up.
 Trade wars and tariffs: Trade tensions between major economies, such as the United States and
China, impact global economic growth and investor sentiment. Uncertainty surrounding trade
negotiations and the imposition of tariffs can drive investors towards safe-haven assets like gold,
leading to price increases.

GOLD VS INDIAN STOCK MARKET.

The inverse relationship between gold prices and the Indian stock market is primarily driven by

several economic and psychological factors that influence investor behaviour. Here's a detailed look at the

reasons behind this inverse relationship:

1. Safe-Haven Asset: Gold is often considered a safe-haven asset. During periods of economic

uncertainty, political instability, or stock market volatility, investors seek to preserve their wealth by

moving their investments into gold. This flight to safety increases the demand for gold, driving up its

price. Conversely, when the stock market is performing well and investors are confident, they tend to

move money out of gold and into equities, leading to a decrease in gold prices.

2. Inflation Hedge: Gold is seen as a hedge against inflation. When inflation is high, the

purchasing power of money decreases, and investors turn to gold to maintain their wealth. Stock markets,

on the other hand, often suffer during high inflation periods due to increased costs and lower profit

margins for companies. This dynamic causes gold prices to rise when stock markets fall, and vice versa.
GOLD: PORTFOLIO SAVER 7

3. Interest Rates: There is a relationship between interest rates, gold prices, and stock markets.

When central banks, such as the Reserve Bank of India (RBI), increase interest rates to combat inflation,

the opportunity cost of holding non-yielding assets like gold rises, which can lead to lower gold prices.

Higher interest rates can also lead to higher borrowing costs and lower profitability for companies,

negatively impacting the stock market. Conversely, when interest rates are low, gold becomes more

attractive, and stock markets may benefit from cheaper borrowing costs, leading to higher equity prices.

4. Rupee Value: The value of the Indian rupee can also influence the inverse relationship

between gold prices and the stock market. Gold is traded globally in US dollars. When the rupee

depreciates against the dollar, the cost of gold in rupees increases, making it more expensive for Indian

investors and pushing up domestic gold prices. A depreciating rupee can also negatively impact the stock

market, especially for companies reliant on imports or with dollar-denominated debt.

5. Diversification and Portfolio Balancing: Investors often diversify their portfolios to manage

risk. When stock markets are volatile or declining, investors may increase their allocation to gold to

balance their portfolios and mitigate losses. This shift in investment preferences increases the demand for

gold, leading to higher prices. Conversely, during bull markets, investors might reduce their gold holdings

in favor of higher-yielding stocks, decreasing gold prices.

6. Global Economic Conditions: Global economic events and conditions also play a role. For

instance, during global financial crises, investors worldwide tend to flock to gold, driving up its price.

These crises can negatively impact stock markets globally, including in India. The interconnected nature

of global markets means that events in major economies like the US or Europe can simultaneously affect

gold prices and the Indian stock market in opposite directions.

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Conclusion: The inverse relationship between gold prices and the Indian stock market is a result

of gold's role as a safe-haven asset, an inflation hedge, and a diversification tool. Economic conditions,

interest rates, currency value fluctuations, and global financial events all contribute to this dynamic.

Understanding these factors helps investors make informed decisions about asset allocation and risk

management in their portfolios.

Top 5 countries who export and import gold and have natural gold reserves:

Top 5 Gold Exporter Countries in the world:

1. Switzerland

2. Hong Kong

3. United States

4. South Africa

5. United Arab Emirates

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Top 5 Gold Importer Countries in the world:

1. Switzerland

2. China

3. United Kingdom

4. Hong Kong

5. India

Top 5 Countries with the largest gold mine reserves in the world:

1. Australia

2. Russia

3. South Africa

4. United States

5. Indonesia (Vijay,2024)

GOLD TRADING:
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There are four types of trading:

1. day trading

2. position trading

3. swing trading

4. scalping

Trading gold can be approached through various techniques and types of trading, each

catering to different investor preferences and risk profiles. Here are some common techniques

and types of trading gold:

Trading Techniques:

1. Spot Trading

 Definition: Buying or selling gold for immediate delivery.

 Characteristics: Prices are determined by the current market rate, known as the

spot price. This is straightforward and reflects the current demand and supply

conditions.

 Investors: Suitable for those looking to own physical gold immediately or

speculate on short-term price movements.

2. Futures Trading

 Definition: Buying or selling gold contracts for delivery at a future date.

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 Characteristics: Contracts specify the quantity, price, and delivery date. Futures

trading allows leverage, meaning traders can control a large position with a

relatively small investment.

 Investors: Suitable for speculators and hedgers. Speculators aim to profit from

price changes, while hedgers use futures to mitigate risks associated with price

fluctuations.

3. Options Trading

 Definition: Trading options contracts that give the right, but not the obligation,

to buy or sell gold at a predetermined price before a specified date.

 Characteristics: Calls (right to buy) and puts (right to sell) allow traders to profit

from price movements with limited risk to the premium paid for the options.

 Investors: Suitable for those looking to hedge other investments or speculate on

price movements with limited risk.

4. Exchange-Traded Funds (ETFs)

 Definition: Investing in funds that track the price of gold.

 Characteristics: ETFs like SPDR Gold Shares (GLD) are traded like stocks and

offer a way to invest in gold without holding physical metal. They can be

bought and sold during market hours.

 Investors: Suitable for investors seeking exposure to gold prices without the

complexities of futures or physical gold storage.

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5. Contract for Difference (CFD) Trading

 Definition: Trading contracts that mirror the price movements of gold without

owning the underlying asset.

 Characteristics: CFDs allow for leverage and can be used to speculate on both

rising and falling prices. Traders only need to cover the margin requirement.

 Investors: Suitable for short-term traders and speculators looking to capitalize

on price volatility.

Types of Trading Gold

1. Physical Gold Trading

 Forms: Bars, coins, and jewelry.

 Characteristics: Involves the purchase and sale of tangible gold. This type often

incurs additional costs like storage, insurance, and dealer premiums.

 Investors: Suitable for long-term investors and those looking for a tangible

asset. It is also preferred by those seeking a hedge against economic uncertainty.

2. Digital Gold

 Definition: Buying and selling gold through digital platforms where the gold is

stored by the provider.

 Characteristics: Combines the benefits of physical gold with the convenience of

online trading. Investors can buy small quantities and don't have to worry about

storage.
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 Investors: Suitable for retail investors looking for an easy way to invest in gold

without the hassle of physical storage.

3. Gold Mining Stocks

 Definition: Investing in companies that mine and produce gold.

 Characteristics: Stock prices of these companies are influenced by gold prices

but also depend on operational performance, management, and other factors.

 Investors: Suitable for those looking to gain exposure to gold with the potential

for dividends and capital appreciation from successful mining operations.

4. Gold Mutual Funds and ETFs

 Definition: Investing in funds that focus on gold-related assets.

 Characteristics: These funds invest in a diversified portfolio of gold-related

assets, including physical gold, mining stocks, and futures.

 Investors: Suitable for investors seeking diversified exposure to gold with

professional management.

5. Leveraged and Inverse ETFs

 Definition: ETFs designed to deliver multiples of the performance of the

underlying gold index (leveraged) or the inverse performance (inverse).

 Characteristics: High-risk instruments used for short-term trading strategies.

Leveraged ETFs aim to amplify returns, while inverse ETFs profit from

declining gold prices.

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 Investors: Suitable for experienced traders with a high risk tolerance looking to

take advantage of short-term price movements.

CONCLUSION:

The gold trading market has a rich history, deeply intertwined with human

civilization's economic and cultural development. Historically, gold has been a symbol of

wealth and power, serving as currency and a standard for monetary systems. The allure

of gold led to extensive trade routes, exploration, and even conflicts.

In modern times, gold's role has evolved into a critical financial asset and

investment tool. As a portfolio saver, gold is prized for its ability to hedge against

inflation, currency devaluation, and market volatility. Its low correlation with other asset

classes makes it a valuable component in diversified portfolios, reducing overall risk and

enhancing stability during economic downturns.

The gold trading market today encompasses a variety of instruments, from

physical gold and ETFs to futures and options, catering to different investor needs and

strategies. This diversity enables both long-term investors seeking wealth preservation

and short-term traders capitalizing on price movements to participate effectively.

Overall, the enduring appeal of gold as both a cultural symbol and a financial

asset underscores its unique position in the global economy. Its historical significance,
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combined with its modern utility in risk management and investment diversification,

ensures that gold remains a cornerstone of trading and investment strategies

worldwide.
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References

1. https://hrdc.gujaratuniversity.ac.in/Publication

2. https://www.nsenergybusiness.com/news/largest-gold-reserves/

3. www.moneycontrol.com