Gold and Silver Investment in India: an Investor’s Perspective

Abstract

Gold and silver are valued for their aesthetic characteristics as well as being excellent investment avenue. In light of the Indian financial market, it is important to understand their portfolio and hedging capabilities. Thus, the objective of this study is to explore the potential benefits of investing in gold and silver, with a focus on how they might be used as hedging strategies against inflation and market volatility. We aim to investigate the time-varying relationships among inflation, gold, silver, and the Nifty index, spanning from November 2003 to March 2023. This will provide insight into the dynamic interdependence of different financial assets and how that impacts portfolio management strategies. We use the Generalized Autoregressive Conditional Heteroskedasticity (GARCH)-Dynamic Conditional Correlation (DCC) model to achieve our objectives. Using this methodology, we can examine the relationships throughout time between the Nifty index, inflation, gold, and silver while accounting for the volatility in the market during the COVID-19 epidemic and the 2008 financial crisis. We discovered a statistically significant positive correlation between silver and inflation, indicating that silver is useful to hedge inflation. Comparing to gold, silver is an excellent hedge against inflation. Additionally, during the financial crisis period there is a significant negative correlation between the Nifty index and gold, indicating that gold may be utilized as a hedge against stock market declines. The findings of the research have major implications for hedging tactics and portfolio management in the Indian financial market. Although gold has characteristics that may make it an inflation hedge, there is no evidence of long-term importance in its link with the Nifty index. Still, there might be advantages in terms of lower risk when gold and the Nifty are combined in a diversified portfolio. Gold's importance as a safe-haven asset is highlighted by the dynamic nature of correlations, especially during market downturns, as seen by its performance during the 2008 financial crisis.