Why invest in Gold and Silver ETF Fund of Fund

 

Why should investors invest in Gold and Silver ETF Fund of Fund?

Mutual funds schemes track some market index or price of commodities e.g. gold, and silver. ETFs ( Exchange Traded Funds) are listed on stock exchanges and are traded like stocks.

We have seen India as the largest market of gold in the world. Indian families buy gold on auspicious occasions like Akshay Tritiya, Dhanteras, Diwali, weddings, etc. which increases the demand for gold in India.

• Indian parents gift gold to their children, daughters-in-law, and sons-in-law on the occasion of their wedding, parents start buying gold for their children’s weddings from a young age. Instead of buying gold jewelry, which invariably contains impurities, you should invest systematically in gold ETFs which represent a certain weight of pure 24-carat gold. As the time comes for your children’s wedding, you can redeem the gold ETF and use the proceeds to purchase gold jewelry as per your preferences without any deduction for impurities.

• You store your gold jewelry in a bank locker, and a fee is debited every year from your savings bank account whereas there are no storage costs if you invest in gold ETFs, ETFs are much more cost-efficient investments as compared to physical gold.

• Silver is also an auspicious metal in India. With its use in jewelry, silver is also used in heavy and new-age industries (e.g. solar panels, electric vehicles, smartphones, etc). With the development of new age technology, the demand for silver is rising but supply is limited. You should also consider investing in silver as an asset class since it has the potential of generating capital appreciation for you over long period horizons.

• Both precious metals retain their value since their value increases over time. Gold and silver are also considered hedges against inflation. Both asset classes have the potential to beat inflation in the long term. So it is wise to buy gold and silver for investment purposes. Instead of buying gold and silver as physical bullion (e.g. bars, ingots, coins, etc.) which incurs storage costs in the form of bank locker fees, you should invest in Gold and Silver ETFs which are much more cost-efficient investments.

• Diversifying your investments over multiple asset classes (i.e. asset allocation) will reduce your portfolio risks. Since Gold and silver have a low correlation with equities. Gold is usually counter-cyclical to equities, which brings stability to your portfolio in different investment cycles. Silver usually outperforms gold in bull markets. Hence it can further diversify the investment portfolio.

Can we invest in precious metals at this Valuation?

As we have observed that the Dollar index has a negative correlation with precious metals. The Dollar has been very strong over the past few months. As a result gold and silver prices have come down.
The US GDP has contracted for the last two consecutive quarters. With the US economy weakening with high inflation and the interest rate tightening cycle coming to an end, the Dollar Index is likely to weaken.