Published: 14 Jul 2017

Investing in gold – Did our ancestors have it right?

Investing in Gold – Did our Ancestors have it Right?
Indians are besotted with gold and have been for centuries. gold was given prime importance by our ancestors as an investment choice for a number of cultural, historical and religious reasons,. Also, given the limited investment options available to common people until the advent of modern stock exchanges and large financial institutions, investing in gold also made practical sense.

Even today, when there is a huge variety of investment options open to Indians, our love affair with gold continues. Along with a range of societal motives, there is also the recognition of the  value of gold, the very same thing that attracted our ancestors as well.

So did they have it right? Is India’s ancestral love for gold relevant even in modern times?

1. Inherent value of gold
Unlike stocks, bonds, mutual funds, futures and other such investment options, gold is a physical asset that has inherent value. This means that no matter what the health of the economy is, gold retains its value in the longterm nevertheless. This fact has been true in the past and will continue to be true in the future as well.

2. Gold is inflation proof
Currency devaluations and inflation gradually erode the value of investments. This, however, is not applicable to gold which has historically been considered as the perfect hedge against inflation and remains so today. Gold, due to its intrinsic physical value, popularity as an investment choice, and limited supply, bodes exceptionally well during inflationary periods, outperforming other investment options.

3. Gold offers much needed stability
Although the value of gold isn’t absolutely stable, it is less volatile than other asset classes including shares. The stock market is inconveniently married to a multitude of external factors – geopolitics, earnings, macroeconomics, market sentiment and many more. The reliance on these external factors makes stock markets extremely vulnerable to rapid, unpredictable changes.

The value of gold isn’t tied to the economic well-being of a country and there is no counterparty risk involved (the risk that a third-party will not live up to its contractual obligations, something that is pervasive in other financial investments). This has been recognized for a long time, and still holds true today.

4. Gold offers excellent liquidity
As has been true throughout history, gold has excellent liquidity. Considering the eternal demand for gold and its limited supply, gold purchases can be sold instantly. The same isn’t true for other physical assets – let’s say a house – which has to be put on the market for months, and even after that, you may not get the price you wanted. Gold, on the other hand, is instantly saleable at  a live market price.

These facts very clearly illustrate that gold, as an investment choice, stands the test of time. And in times like these, when financial volatility is increasing, inflation continuing to be significant  and people are looking to shield themselves, gold investments continue to be relevant.

Our ancestors definitely had it right.