Why Gold prices are soaring and how and why should we invest in Gold

Read this article to know why the prices of the yellow metal- gold have been soaring higher and higher. Read the reasons that are contributing to the ever rising prices on Gold in Indian and international markets.

The yellow metal is on all time high, inspite of phenomenal rise in gold price. The rise in the value of gold can be attributed to global recession as investors are looking for a safe place for their funds.

Reason for increasing gold price

Here are some reasons why the price of gold is increasing rapidly.
Lost of sheen in equity markets - The Indian equity markets crumbled in the month of May- BSE Sensex and S&P Nifty both ended in a negative territory. The small and mid cap index has made some decent gains. It is one of the most prominent reasons as to why people are moving towards gold as an investment. Not to forget the uncertainty in equity and real estate market has allured investors towards gold investment.

Low interest rate on Gold - Commercial and private banks are proffering lower rates on fixed deposits, and other savings scheme. You can even borrow money at low price to invest in gold.

Economic Crisis and Gold investment - As we know the global situation is facing tornadoes and tsunamis, and in the near future it is predicted that it will continue to remain uncertain. In such a scenario, investing in gold is right tool to earn euphoric returns. Also, due to economic crisis many people consider stock, bonds as a risky investment. Moreover, gold is highly liquid form of cash or simply it can be converted into cash as and when the need arises.

effect of Inflation in Gold investment - Gold is an effective tool to combat inflation. With rising inflation, gold serves as a right investment tool.

Gap in Demand Supply of Gold - Gold supply has decreased by almost 40 percent, which in turn have led to huge gap between demand and supply of Gold. The reason why gold mining has decreased is because of the below mentioned reasons.

Why there is decreased supply of Gold than its demand

Cost of Mining have increased
Legal Formalities
Geographical Difficulties
Other difficulties

China is adding gold reserves to its portfolio - One of the prominent reason of a price rise is, China is on a mission to safeguard its economy by preserving gold reserves. Till now it holds 1050 metric tons of gold. Moreover, it is actively encouraging its citizen to invest in this yellow metal.

Transfer of Gold Depositories - Hong Kong is relocating its gold from London to another safe depository. The move like it sends the signal that we are hoarding the gold, and we want to store it safely, and control it instantly as and when the need arises.

Political Instability - Whenever there is a crisis, war or famine like situation, investing in gold is considered as safe haven. After the recent terror attacks, the demand of gold has soared up.

India is the largest buyer of Gold - India eats up the bulk of the gold. Be it wedding or any festival, gold is considered as an auspicious item, and no wedding can be complete without exchange of gold.

GLD, buy backs the shares - GLD is supposed to hold over 1000 tones of gold in its kitty. This has proved to be a major push on gold price.

Why should we invest in Gold

The next question arises why you should invest in gold

High Value - As stated earlier, gold is a highly liquid investment. It can be converted into cash anytime.

Security - Most of the banks provides gold loans, in exchange of this precious metal.

Investment in gold bonds or mutual funds - Gold Mutual Fund is an open ended scheme with an investment to provide you the returns that closely correspond to returns provided by the scheme. In case of gold bonds, generally the lock in value is for3 years, and after that you can take delivery of gold.

Thus, inspite of a rise in prices the yellow metal has not lost its sheen.


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