At a time when investors are spooked by the spread of COVID-19 and the markets remain volatile, the World Gold Council (WGC) said gold can provide liquidity with no credit risk and improve overall portfolio performance.
Gold is a clear complement to stocks, bonds and broad-based portfolios, as it is a hedge against systemic risk, currency depreciation and inflation, WGC said in a report ‘The relevance of gold as a strategic asset: Indian edition’.
It has historically improved portfolios' risk-adjusted returns, delivered positive returns and provided liquidity to meet liabilities in times of market stress, it noted.
“Today, gold is more relevant than ever before for the Indian investors. In such times of uncertainties and global market turmoil, gold possesses the ability to significantly improve risk-adjusted returns of portfolios across various levels of risk and act as a hedge against inflation and our data confirms this,” WGC Managing Director, India, Somasundaram PR said.
A well-diversified portfolio with gold will also tend to avoid panic reaction to market movements, and in a way, act against exacerbating the volatility, he opined.
“The average annual return of gold of 10 per cent since 1981, has outpaced the Indian consumer price index (CPI) that averaged over the period at 7.35 per cent.
“Gold also protects investors against extreme inflation. Gold's unique attributes as a scarce, highly liquid and un-correlated asset highlight that it can act as a genuine diversifier over the long term,” he said.
In India, gold's dual position as an investment and for adornment has allowed it to deliver average returns of approximately 9 per cent over the past 10 years, comparable to stocks and bonds and commodities, he said.
“Over the long term, therefore, gold has not just preserved capital, but helped it grow,” he added.
Perceptions of gold have changed substantially over the past two decades, reflecting increased wealth in the east and a growing appreciation of gold's role within an institutional investment portfolio worldwide, the report said.
Gold's traditional role as a safe-haven asset means it can demonstrate its qualities during times of high risk, however, its dual appeal as an investment and a consumer good means it can generate positive returns in good times too, it added.
