Gold, in addition to its safe-haven appeal, provides significant advantages in portfolio diversification.
Amidst the volatile global landscape marked by geopolitical concerns, rising inflation, and market volatility, gold has reinforced itself as a critical asset in 2024 investment portfolios. In 2024, with tensions particularly in the Middle East and Eastern Europe and the ramifications on energy charges, global commerce, and investor confidence, the present geopolitical turmoil has prompted investors to purchase gold, which, unlike other assets, is untouched by governance, corporate, or political concerns. It adds a layer of security unavailable in other volatile asset classes.

Gold’s unique appeal lies in its resilience and historical stability, offering investors a secure haven during times of economic instability. As traditional assets face rising problems, the enduring worth of gold makes it an appealing and secure option for both individual and institutional investors, instilling a sense of confidence in their investment decisions.

According to a World Gold Council analysis, gold has been positively consistent, helping investors offset the fall in purchasing power in other sections of their portfolios. Major economies, like India and the United States, are facing inflationary pressures caused by rising energy costs and pandemic-related supply chain disruptions, among others. For this reason, gold becomes a much safer option.

Gold, in addition to its safe-haven appeal, provides significant advantages in portfolio diversification. As global economies grapple with the challenges posed by rapid technological change and market volatility is projected to persist, gold’s minimal correlation to stock markets acts as a buffer against such volatility. This reassures investors about their risk management strategies and makes gold a key component of their diversification plans to improve overall portfolio stability.

Central banks’ interest rate policies also significantly impact gold demand. During inflation, many central banks raise interest rates to slow the economy. However, rising interest rates increase borrowing costs, potentially leading to decreased consumer spending and slower economic growth. This economic drag, combined with growing capital costs, increases the attractiveness of non-yielding assets such as gold, which have lower opportunity costs than other assets.

Younger investors have begun to recognise gold’s potential, seeing it as a steady alternative to high-volatility investments such as cryptocurrency. While gold may not provide the same rapid returns as high-growth stocks, it is a valuable addition to long-term investing strategies, particularly for individuals seeking to preserve capital. Global policy decisions, technological improvements in mining, and central bank purchasing habits will also influence gold’s future trajectory, offering a sense of optimism and forward-thinking to investors.

Whether investors seek a hedge against inflation, a buffer against volatility, or a way to preserve wealth, gold’s historical stability makes it a vital asset for managing today’s financial difficulties. Gold demand is expected to be gold’s present price higher, and with the prospect of more increases in the coming months, selling now could be favourable. Furthermore, purchasing vast quantities of gold may lower prices, allowing you to sell it at a premium later.

Author: Prof. Ronil Barua, Faculty of Finance, FLAME University.