Should You Invest in Commodities like Gold and Silver?

5 mins read
by Angel One

If you are looking to build your investment portfolio, commodity investments could diversify your asset allocation and reduce the overall risk at hand. Gold and silver are investor-friendly instruments, owing to the liquidity freedom they provide their investors. Gold and silver are fabulous wearables, but they are also fantastic investment options. But should you prefer a commodities gold investment over a mutual fund or a fixed deposit? Let’s dive in and see whether you should invest in commodities like gold and silver.

Precious metals as an investment alternative

Gold doesn’t rust, and it stays beautiful. From an investing point of view, gold is considered a safe bet. It has been the most sought-after commodity for thousands of years and has found practical applications in medicine, dentistry, beauty and numerous other industries. In stressful times, people fall back on their commodities gold holdings – they have faith in the power of gold.

Since ancient civilisation, gold has always been held in high esteem, and it has had an exceptional value for humanity. Over the period, gold has been used as money for exchange as a safeguard with value, and it has also been used in jewellery and other artefacts. The fact that gold does not erode adds to its value, and the relatively finite resources for gold have only added to its prestige.

Why is gold a go-getter?

Let’s discuss what has been happening in the gold and silver markets in India. The gold returns in the previous year were not extremely promising; however, experts and analysts believe that the gold prices and the returns on gold funds will rise in the coming times. It is reported by The Economic Times that the demand for gold exchange-traded funds has increased 19.38 fold between August and September 2021. Gold ETF inflows were Rs. 23 crores in August and Rs. 445.69 crores in September. The rising demand could be due to the chaos everywhere else in the society – the real estate crisis in China, a new wave of covid-19 cases, the oil, the transportation and the climate change crisis. People have trusted this precious metal for decades, and gold seems to be a wise investment choice in times of uncertainty – proving the point that people fall back upon in challenging times.

Are gold and silver worth their investments?

If we track the price of gold over the last 50 years, we will find that the appreciation of this asset class matches the best returns from any other investment. Gold reserves have been considered essential at an individualistic level, and nations prefer to keep a war chest of gold reserves handy as well. The allure of gold has fascinated Indians in particular due to its use in jewellery and safekeeping for hard times. Today, there are various ways in which gold and silver can be added to your portfolio. Apart from buying physical gold and silver, one can also invest in ETFs, a.k.a exchange-traded funds and sovereign bonds. Certain jewellers also come out with schemes to buy gold and silver digitally – although you must check the credentials of such parties before investing.

Another out-of-the-box way of investing in gold can be by buying shares of gold mining companies or jewellery stores.

Let’s talk silver

Silver is like a sibling who does not receive much attention. Silver has always been overshadowed by gold, and the price of gold largely influences the price of silver. But guess what? You should invest in commodities silver to receive handsome returns.

If you’d like to invest in silver, you can do so through silver bars, coins, jewellery items and utensils. There are several size and purity options for investors to choose from, and silver bars are also available based on investors’ storage requirements.

Those who invest in commodities have been primarily interested in gold due to its popularity and elite class. However, the focus is slowly drifting towards silver. The reason is that the return-earning capacity of silver has gathered the attention of investors. They are betting on the limited availability and the humongous demand of this precious metal.

Perks of investing in commodities

The most significant advantage of a commodities gold or a commodities silver is the liquidity associated with these asset classes. While it is good to focus on the potential returns, it is also extremely vital that a portion of your portfolio is invested in liquid assets. One can fall back on liquid investment instruments in times of crisis or uncertainty.

New silver applications

Silver is being used in making bonding wire which in turn has usage in smart houses. The smart home industry is in its initial stages of growth, and it is expected that the industry will reach new heights soon. As per a Business Today article, silver has the potential of grabbing market share from gold and silver within the next five years. So the current times could be the perfect time for investing in silver.

Are there any downside risks to commodity investments?

Some argue that since gold has been delinked from backing currency, gold has lost its intrinsic value and is useful only in jewellery. Although this argument holds some water, one cannot deny that gold has many other factors in its favour. See, every investment is a bet on the future potential of the asset class, and hence, past performance is considered a deciding factor. Commodities gold and commodities silver have provided consistent returns in the past, so the advisors are bullish about these metals.

Parting thoughts

Whatever instrument you invest in, you must time the market. Do your research to enter at a low price. Then the tenure over which you want to stay invested is a personal choice. Advisors are recommending staying invested for the long term. The reason is that investors might not see drastic returns in the near term; however, they will witness the boom over a period. Make sure that you know about the regulations and risks associated with commodities before investing.