A sudden drop in the price of gold by almost 21 percent below the lowest reach that was last year in India may want people to rethink before investing. India is one of the largest consumers of Gold. When asked why people spent money on gold, their answer was because it provided financial security and also used to enhance beauty. Almost 77 percent of people bought gold for safety purposes.
Claude B. Erb and Campbell Harvey, the famous economists, point out what exactly affects the price of gold. They said the price is independent of inflation. Therefore, more the demand for gold, more is the price of it.
It goes without saying how adversely COVID-19 has affected the economy of the whole world. After the ending of the first declared lockdown, the stock markets regained investments. People were back into the business of consuming assets. Though not exactly inflation, but rising prices, shrinking economy and maybe many other factors have led to the decreasing gold prices.
As gold prices have been witnessing a downfall since past few months, is it really a good time to invest?
As stated above already, Gold prices are more dependent on the supply-demand chain. This is the reason why gold prices face sudden changes in value after being the same for a period of time.
The best advice would be to study the present market and be cent percent sure of the risks before investing. If you invest at the time when the market is doing good become automatically eligible for good returns.
Having said that, what should one do during times when gold prices are at its minimum?
Invest in small amounts. Gradually build gold allocation, specially during times like these. If you are planning to invest for the long term, gold bonds seem a better option for you. But remember you cannot sell them before 7-8 years.
In case you are thinking about making short term profits and buying and selling gold regularly, you may need to understand that liquidity is important.
The prices are expected to fall further by looking at the recent trends. Therefore, investing carefully and gradually is a sensible thing to do.