Explained: Why Gold Remains a 'Safe Haven' Investment On Dhanteras

India’s relationship with gold is one of reverence and tradition, but it also makes sense as a safe investment in the long run.

As India celebrates Dhanteras, gold has once again taken centre stage, attracting buyers despite its soaring prices. If you’re wondering why gold remains such a sought-after investment, especially during times of economic uncertainty, you’re not alone. Gold is considered a “safe haven” and a cornerstone of wealth preservation in India, and this year’s Dhanteras trends reveal why.

Gold As A Safe Haven

In financial terms, a “safe haven” is an asset that retains or increases its value during times of economic downturn, inflation, or geopolitical tensions. When investors panic, they look for something they can trust, in other words, a hedge against financial instability. Gold has historically been that asset.

Anuj Gupta, Head Commodities & Currencies, HDFC Securities, told ETV Bharat that gold serves as a financial safety net, not just for individuals but for nations as well. “Many fund managers around the world prefer to invest in gold or dollars because these are seen as stable, universal currencies. The United States holds the largest gold reserves, around 9,000 tonnes. When the dollar weakens, people often turn to gold as a safe haven, using it to protect against inflation and uncertainty. Gold is unique in that it can be used anywhere, making it a truly global currency,” he said.

Unlike paper currency, which can be devalued, or stocks, which fluctuate wildly, gold is universally valued and has intrinsic worth that doesn’t depend on any single economy. It’s tangible, limited in supply, and holds value across generations and cultures. India’s relationship with gold is one of reverence and tradition, but it’s also a savvy investment mindset. According to the World Gold Council, Indians purchased approximately 774 tonnes of gold in 2023 alone, with over 40% of that being bought during the Diwali season. Gold’s universal appeal and its role as a wealth protector make it a popular choice during Dhanteras.

Dhanteras 2024 Gold Surge

In 2024, gold prices have continued to soar due to several global factors including inflation, rising interest rates, and geopolitical tensions. Yet, if one looks at Dhanteras trends, buyers are still flocking to buy gold, even at a premium. Saiyam Mehra, Chairman of the Gems and Jewellery Council affirms that gold prices are on a continuous rise. He projects that in the next five years, the price could hit ₹3,00,000 per 10 grams. He said, “Not only do people enjoy the satisfaction of wearing gold but also see their investments appreciate over time. This year, gold sales during Dhanteras and Diwali are anticipated to reach ₹16,000 crores, with 75% coming from jewellery sales and 25% from coins and gold bars. This makes gold investment an appealing opportunity for many.”

Inflation and economic instability:Inflation has been hitting global economies hard, and India is no exception, with inflation peaking at over 7% in certain months this year. When inflation rises, the purchasing power of cash erodes, making investments in traditional assets like savings accounts or bonds less attractive. In such an environment, gold acts as a hedge. People are buying gold this Dhanteras because they see it as protection against the declining value of money.

Geopolitical tensions and market volatility:Political instability, particularly in global markets, has also been a significant factor in driving up gold prices. India, being a major importer of gold, saw gold imports rise to $34 billion last year, reports Reuters, as investors sought safe assets amidst the world’s geopolitical uncertainties.

Supply chain and production constraints:On the supply side, mining disruptions, environmental regulations, and geopolitical factors have impacted global gold production. With limited supply, the demand for gold during Dhanteras has only added upward pressure on prices. This scarcity adds to gold’s allure as it becomes an even more exclusive asset to own.

A Hedge Against Uncertainty

Gold’s value lies in its ability to maintain purchasing power over time. For example, let’s say inflation continues to eat away at the value of paper currency. Gold, in contrast, not only holds its value but often increases in times of financial turmoil. This Dhanteras, many investors are choosing gold precisely because they don’t trust the future stability of traditional markets. With the price of gold on the rise, even small investments in it can prove valuable over the long haul.

In 2024, gold also offers a counterbalance to the volatile stock market. Stocks might offer higher returns, but they also carry more risk. Gold is not about rapid returns; it’s about steady, reliable growth. The World Gold Council’s statistics reveal that gold has delivered annual returns averaging around 8% in rupee terms over the last decade, making it a stable component of any balanced investment portfolio.

Lessons from Dhanteras in 2024

This Dhanteras, we’re witnessing a wave of savvy investors turning to gold, even at elevated prices. They’re asking: “What’s the cost of not securing my wealth in gold right now?” Smart investors understand that while gold prices may fluctuate, the long-term trend is upward. Here are a few lessons we can take away from this trend:

Diversification is key:Financial portfolios should be diversified. While stocks, mutual funds, bonds, and real estate have their merits, gold offers a unique kind of security. This Dhanteras, investors are putting faith in gold not as a standalone asset but as a crucial part of a well-balanced investment portfolio.

Generational wealth and cultural value:Unlike other assets, gold is not just transferable but also culturally revered, which adds to its resilience as a store of value. This cultural value adds a unique element to its financial appeal. Many Dhanteras buyers view gold as an inheritance that grows in value, creating a safety net for future generations.

Seizing opportunity during economic shifts:The most forward-thinking investors know that timing is everything. By investing in gold during a high-demand period like Dhanteras, they’re betting on the long-term trend of gold as a store of value. They understand that while prices are high now, they may go even higher as global uncertainties continue. These investors are essentially securing their wealth now, expecting that gold’s value will rise with inflation and market instability.

Gold’s Long-Term Value

With gold imports in India consistently exceeding 800 tonnes annually, the country remains one of the largest consumers of gold worldwide. Finance trends come and go, but gold remains a constant. This Dhanteras has shown us that even with soaring prices, gold’s status as a safe haven is strong. While it’s essential to be cautious and not over-extend oneself financially, adding a little gold to one’s portfolio could be a strategic financial move in these uncertain times.