Investing in Uncertain Time

Why Is Gold Not The Safest Investment in Uncertain Times?

When it rains earth, mountain, lawns, and bridges all get wet. The value of shelter goes up. Similarly, in times of Warmongering and actual war, the performance of national economies, private companies are affected as the risk increases. The value of the unaffected metal Gold goes up.

We live in fickle times. Things change overnight. A terrorist can attack twin power and the world become an unsafe place. Nuclear powers, the economic and geographical interest of the countries, trade barriers, the ongoing conflict in the middle east, cold war and whatnot. In the midst of this at times, we have internal political uncertainties.

Everything affects the market and economic activities. This is why the BSE Index is called Sensex. Sensitive Index. Sensitive to everything under the sun. Any economic or political action and activities anywhere in the world can impact the market.

Warlike the situation in the Gulf affects oil production and hence the price of the oil. An increase in oil prices can have a negative impact on the economies. The cost structure of the nation and the companies go for a toss as they are hugely dependent on the oil prices for their survival.

Weak companies, weak economies, and currency become weak. The countries which are highly dependent on imported oil are more vulnerable than the oil-producing countries (OPEC).

In uncertain and high-risk time, the stock market goes down, Govt bonds yield go down, profit of the companies go down hence stock prices, companies and banks become weak and vulnerable to go out of business, With less money in the system, and the depressive mood of the market in uncertain times, no buyers for house/offices, hence real asset prices go down.

Nothing is safe. There is a huge possibility of value erosion in all forms of investments.

Handpicked related post: When Secured Investment Becomes Unsecured & Risky

This is the reason people look at the yellow metal in these uncertain times. Nothing affects the performance of the Gold.  Gold is immune to the vulnerability of the market. When everything is down and people lose faith in all forms of investment the money goes towards Gold. In good economic times, the US $ is strong hence more Gold can be purchased with the same amount of US $. Therefore, the price remains lower and under check.

But when the economy is weak and therefore the currency is weak, the Gold price goes up as less Gold can be purchased from the weaker US $.  Secondly higher demand boosts the Gold prices in turbulent times.

Real Estate, Companies, Banks, Countries’ economies all are affected in uncertain times. Hence all investments with these entities are affected in uncertain times. Gold is the precious metal whose value won’t be affected in uncertain times.   This is the reason money move towards this yellow metal.

Higher Gold production can though tame the Gold prices. However, the “easy gold” has already been mined; miners now have to dig deeper to access quality gold reserves. The fact that gold is more challenging to access raises additional problems: miners are exposed to additional hazards, and the environmental impact is heightened. In short, it costs more to get less gold. These add to the costs of gold mine production, sometimes resulting in higher gold prices.

However, for an individual investor, the best bet could be PSU bank’s Fixed Deposits. Gold is safe but prices will come down as soon as uncertainty is over. If you have invested in fear when the price is high, you would lose a good amount of money even after investing in one of the safest investments i.e Gold.

If you want to invest in Gold, do it in a stable time when the prices are stable and not hiked to an unreasonable level.

Indian Govt banks are the safest (as long as the Govt is not bankrupt).  Fixed deposits will earn interest also and there is no scope of depletion of the principal amount. So in uncertain times invest in the instrument in which the chances of prices going down are minimal. PSU banks’ FDs scores higher than Gold at such times.

You may also like to read: Nothing is Safe, How to Minimise the Risk?

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