Investing in Gold and Silver: A Comprehensive Guide

Akshay Tritiya is a festival which is considered auspicious to begin new ventures and make fresh investments in gold and silver. Beyond the religious significance of Akshay Tritiya, there are several strong reasons to invest in gold and silver.

Investing in gold and silver diversifies your portfolio and protects against a depreciating currency. Gold is perceived as a safe haven during times of market stress, heightened geopolitical risks etc. Silver, on the other hand, has various uses in industries like electric vehicles, solar panels, water purification etc. Silver could benefit from improved demand from new age and green technologies.

In addition to the long-term reasons to invest in precious metals discussed above, there is a potential short-term catalyst as well. A possible pause or reversal of the current US Federal Reserve (Fed) interest rate hiking cycle could provide support to precious metals’ prices. Interest rates are one of the factors driving the price of precious metals - historically, we observe that precious metal prices tend to increase when the Fed lowers interest rates.

The table and chart below show how precious metals prices increased when the Fed’s policy turned ‘easy’^, ie. rates stopped increasing, till 2 years after the last interest rate cut of the following easing cycle. Precious metals have performed well in such an environment.

Source: Bloomberg, internal calculations. Gold prices in INR do not include any customs duties, local taxes etc. Data of historical price movements are absolute ie. not annualized. HDFC AMC/Mutual Fund is not guaranteeing or promising or forecasting any returns. Past Performance may or may not be sustained in future. HDFC AMC / MF is not indicating or guaranteeing or forecasting returns of any investments or schemes.

^ Central Banks hike interest rates to slow growth and control inflation. After a hiking cycle also known as ‘tight’ policy, central banks often need to cut rates next ie. move to ‘easy’ policy, to stimulate the economy if it slows too much

The Fed appears to be nearing the end of the current hiking cycle, as inflation cools and US economic data weakens. Based on their March 2023 projections, the Fed expects to hike rates in H1 2023, and then subsequently lower interest rates significantly (unless inflation spikes significantly).

In light of precious metals’ strong performance during easing cycles, investors can consider the following products to invest in Gold and Silver on the auspicious occasion of Akshay Tritiya.

Investors can increase their exposure to precious metals through the below products, either through SIPs, or through lumpsum investments.

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