Is gold as good a bet as cryptocurrencies sweat?
If you mistakenly use quicklime (choona) instead of white butter (makkhan) as a bread-spread, you may suffer painful mouth burns.
Similarly, those who misunderstood cryptocurrencies for gold (about a year ago) might be feeling the same pain now.
No, cryptocurrencies haven’t replaced gold yet
As you must be aware, cryptocurrencies have plunged like they fell off a cliff. Bitcoin, the world’s most popular cryptocurrency is down 70% from its 1-year high, although it trades at over 3 times its pre-pandemic levels. As against that, gold is down just 4.5% from its 1-year high in India.
Clearly, the writing on the wall is: gold still dominates as a safe haven asset! So far cryptos have failed to shield investors against inflation and policy actions of major central banks.
Inflation, which was running at a four-decade high in the US in May 2022, elicited the harshest policy response from the Federal Reserve (Fed) in the past 28 years. The Russia-Ukraine war has exacerbated the situation.
Mounting worries for the global economy have spooked speculative rallies in cryptos and other risky assets. Equity indices have also come under pressure from the beginning of 2022. S&P 500 is down over 20% and BSE 500 has declined more than 10%.
What makes gold attractive?
- Periods of economic uncertainty
- Geopolitical crises
- Negative/low inflation-adjusted interest rates
Investing in gold is a no-brainer on this backdrop.
Should you invest in gold through Series-1 of Sovereign Gold Bonds (SGB) Scheme 2022-23?
On behalf of the government, RBI has launched Series-1 of the SGB Scheme 2022-23. The scheme is open for subscription between 20 June 2022 and 24 June 2022. The issue price is Rs 5,091/gram.
However, if you subscribe online and pay through a digital mode, you will get a discount of Rs 50 per gram. In that case, your subscription price would be Rs 5,041/gram.
The scheme has a tenure of 8 years and will pay an interest of 2.5% p.a. The interest is taxable but doesn’t involve any Tax Deduction at Source (TDS). SGBs will be traded on exchanges. You may even use them as collaterals against loans. Capital gains at maturity are tax-free.
Role of SGBs in your overall investment portfolio…
Smart investors don’t chase returns or constantly churn their portfolio to generate superior returns. Instead, they emphasize on the role of asset allocation.
Asset allocation—proportion of various asset classes in your portfolio—is one of the most important decisions in investing.
Optimum asset allocation provides stability to your portfolio besides offering you superior risk-adjusted returns. Unfortunately, many of us realize it only when our over-exposure to one asset class knocks down our portfolio.
Nonetheless, it’s never too late to reassess a portfolio.
Did you know?
The first series of SGBs released in November 2015 has generated a compounded annualized return of 10.2% for its investors so far. Back then the issue price was Rs 2,684/gram. SGBs issued under the November-2015 tranche will mature in 2023. You see, holding SGBs until maturity can be rewarding!
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