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Is gold a better investment option than debt?
Why is fixed deposit a better choice?
Unlike equity and gold, fixed deposits guarantee you a certain sum and your principal is most certainly protected. This means that if you invest Rs 1 lakh in a fixed deposit, there's no way after one year you would get an amount less then Rs 1 lakh, unless it is a risky company fixed deposit.
In the the next few months, gold is unlikely to surge dramatically, unless there is geo-political tensions around the globe. In fact, these tensions seem to be reducing by the day with Iran now showing signs of being prepared to return to the negotiating table, regarding its own nuclear programme.
With things on the Syria front quiet, gold is not expected to rally on geo-political tensions.
Also, the bad news for gold investors is that there is a global economic recovery that is happening in Europe and US. In fact, data coming out from Japan seems to suggest a good rebound in exports and economic activity. Now, when this happens gold is unlikely to rally as investors would obviously prefer equities and debt over gold.
Another bad news for gold is that at some points this year or early next year, the US Federal Reserve would withdraw its quantitative stimulus or QE3 programme as they call it. This means that the world would have less liquidity. Gold has rallied in the past few quarters largely on account of the easy liquidity conditions around the world, which has seen a lot of easy money finds its way into gold.
Now, if this money is withdrawn it would most likely ensure that gold prices fall.
On the other hand interest rates in India have been rising steadily. In fact, bank fixed deposits can offer you yields of around 9.5% to 10% for one year.
Clearly, gold may not be able to give you similar returns in the next one year, thus making debt instruments like fixed deposits a better proposition.
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