On this episode of the State of the Economy podcast on personal finance, Chirag Mehta, Chief Investment Officer at Quantum Mutual Funds, discusses the outlook for gold bullion and its investment options with Aarati Krishnan. Chirag has been tracking bullion and alternative assets for more than two decades.
When asked why gold, despite being a safe haven, hasn’t really delivered huge returns amid the many crises the world is facing, from the COVID-19 pandemic to the Russia-Ukraine war and the current inflation, Chirag explained that this Probably because some of these crises proved short-lived. In the case of the Russia-Ukraine war, for example, its impact was contained because it was limited to both countries without wider participation. Central banks have been raising interest rates recently, which has led to higher interest rates on government bonds and other instruments that compete directly with gold. He believes gold has the potential to outperform once central banks start withdrawing liquidity and lowering interest rates in response to an economic slowdown or recession.
Explaining how gold ETFs are superior to sovereign gold bonds (SGBs) as a way to hold gold, he points out that ETFs have two attributes that can help investors seeking diversification. They provide liquidity at any time, helping investors increase or decrease exposure according to asset allocation needs. They are also fully backed by physical gold, which is not the case with SGB. This backing convinces investors that they are indeed the owners of the gold.
Regarding the fact that some gold ETFs are illiquid and trade well below their net asset value, he advises investors to consider the route of gold savings funds for ETF exposure. Gold savings fund is an open-end fund, institutions can buy and sell gold ETF units at a suitable price, and provide liquidity for investors at any time. He pointed out that the fees charged by the Quantum Gold Savings Fund are very nominal. He believes that now is a good time to add gold ETFs to a portfolio as a diversification tool.
(Moderator: Aarati Krishnan, Producer: Darshan Sanghvi)
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