Gold portfolio
Piyush Prajapati 07 April, 2023

Why Sovereign Gold Bonds are a Must-Have in Your Portfolio: Unlocking Their Value as an Asset Class

Gold has been a valuable commodity for thousands of years, with a rich history in trade and commerce. It is not only prized for its beauty and rarity but also as a safe haven asset that can provide a hedge against inflation, economic uncertainty, and currency fluctuations. As a result, gold has become a popular asset class for investors looking to diversify their portfolios and protect their wealth.

But how good is gold as an asset class in investing? Let's explore some of the pros and cons of investing in gold.

Advantages of investing in gold

1. Hedge against inflation: Gold has historically been a hedge against inflation. When the value of currency declines, the price of gold tends to rise, which can help to protect investors from the effects of inflation.

2. Diversification: Gold can help to diversify a portfolio, providing a hedge against stock market volatility and economic uncertainty.

3. Safe haven asset: In times of economic crisis or geopolitical uncertainty, investors often flock to gold as a safe haven asset, which can help to protect their wealth and provide stability to their portfolios.

4. Tangible asset: Unlike stocks or bonds, gold is a tangible asset that investors can physically hold, making it a popular choice for those looking to invest in something that they can see and touch.

Historical price trend of Gold

The price of gold in India has fluctuated over the years due to various economic, political, and global factors. However, I can provide you with some historical data on the price of gold in India since 1947 based on the average annual price of 24 karat gold.

(i) 1947: Rs. 88.62/10 grams

(ii) 1950: Rs. 111.70/10 grams

(iii) 1960: Rs. 119.63/10 grams

(iv) 1970: Rs. 184.27/10 grams

(v) 1980: Rs. 3,140.00/10 grams

(vi) 1990: Rs. 3,200.00/10 grams

(vii) 2000: Rs. 4,400.00/10 grams

(viii) 2010: Rs. 18,500.00/10 grams

(ix) 2020: Rs. 48,651.00/10 grams

(x) April 2023: Rs. 62,000.00/10 grams

Please note that the above figures are approximate and represent the average annual price of gold in India during each of the respective decades. The price of gold can vary significantly based on a variety of factors, including global economic conditions, inflation, government policies, and other geopolitical events.

Sovereign Gold Bonds ( SGB ) : The best way to invest in Gold Sovereign gold bonds ( SGB ) have several advantages over physical gold as an investment option.

Income generation : Physical gold doesn't generate any income, while Sovereign gold bonds ( SGB ) offer 2.5% fixed interest rate to investors. Therefore, sovereign gold bonds ( SGB ) are better than physical gold in terms of generating income.

Storage costs :Physical gold requires physical storage, which can add additional costs to the investment. Sovereign gold bonds ( SGB ) don't require physical storage and can be held electronically in the investor's Demat account, which is a convenient and cost-effective way of investing in gold. Therefore, Sovereign gold bonds ( SGB ) are better than physical gold in terms of storage costs.

Liquidity : Physical gold is less liquid than Sovereign gold bonds ( SGB ), which can make it difficult to sell quickly if needed. Gold bonds and sovereign gold bonds ( SGB ) are highly liquid assets and can be easily traded on the stock exchange. Sovereign gold bonds ( SGB ) are better than physical gold in terms of liquidity as well.

Piyush Prajapati 07 April, 2023

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