A rise in the price of gold may be a sign that the economy is struggling. As a result, in times of crisis or inflation, many investors turn to gold to protect their capital. Traditionally yes, gold prices tend to rise when inflation causes the value of the currency to fall. In this sense, gold acts in the opposite way to market conditions, but this is not always the case.
Gold can be as vulnerable as the stock market if investors choose not to look for it. Again, this is the product of the fact that the value of something is largely based on social perception and popularity. If we all woke up tomorrow and decided that gold was worthless, the price would plummet. However, there is no guarantee that the value of gold will rise.
And stocks and bonds are generally considered better investments for retirement, as they have historically outpaced the rise in the price of gold over the long term. However, gold can be a safe investment when the economic outlook is not good, Cramer says. India's demand for gold usually peaks between October and December, due to Diwali, the festival of lights, followed by thousands of weddings. India is one of the largest markets for gold consumption, and jewelry, ingots and coins account for most of the annual demand.
India's gold consumption in the second half of each year is usually higher than in the first half of the year, and coincides with October's Diwali (early first quarter), according to data from the World Gold Council. But what happens during a recession? Is gold still a good choice? Many think that gold, due to its historical value, is a safe investment for all, even with an economic downturn. As a result, it's important for investors to consider the overall macroeconomic and geopolitical environment when analyzing gold. But if you buy gold before that happens, you can buy it at a lower price for a solid return on investment.
The value of gold is a social construct, meaning that its value is based on the value that society attaches to it. Gold has a long-standing reputation as a stable asset that can always be trusted to maintain its value and protect against volatile economic outcomes. In addition, high inflation is eroding the purchasing power of each dollar, encouraging investment in a tangible asset such as gold and other hard assets. Similarly, with fear and uncertainty at an all-time high during the COVID-19 pandemic, gold-backed exchange-traded funds recorded unprecedented inflows and the price of gold reached an all-time high.
The value of gold derives from its scarcity as a commodity, as well as from its long history as a stable medium of exchange. People usually dedicate their purchases of gold during Diwali to deities, especially to Lakshmi, the goddess of wealth. Gold also provides a significant way to diversify your portfolio and reduce your overall financial risk at all times. However, aside from storage costs, physical gold can be a cheap way to own gold, Cramer tells Make It.