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NEW DELHI : A 13% drop in the price of gold over the past year has brought the yellow metal close to its worst one year period over the past 12 years. According to data from Value Research for Nippon India ETF GoldBeES, an exchange-traded fund that tracks gold price, the worst calendar year return for the precious metal since 2009 was in 2013 when it dropped by 14.08%. If we consider all one-year periods over the past 14 years, the worst episode was between 16 July 2007 and 15 July 2008 when the price of gold dipped by about 19.8%. This was when the global financial crisis erupted after the collapse of Lehman Brothers. The 2013 dip for gold occurred along with emerging market currencies on account of fears of the Federal Reserve withdrawing liquidity (called the taper tantrum). Similar fears of the Federal Reserve withdrawing its stimulus measures have weighed on the price of gold over the past year. Other precious metals such as silver have followed suit after staging a rally in 2020 and the initial months of 2021.

Financial advisers traditionally recommend gold due to its low correlation with equity. The precious metal tends to rise when equity markets correct and vice versa. Stock markets have been buoyant over the past year with the Nifty up by around 44% even as gold crashed, lending weight to this argument. Over the long term, gold is also considered a good hedge against inflation. Nippon India ETF GoldBeES has delivered a compounded annual growth rate (CAGR) of 10.81% since it was launched in March 2007. A portion of the demand for physical gold has also been diverted to Sovereign Gold Bonds (SGBs) which the Government of India started issuing since 2015. The Government of India has raised 25,702 crore through SGB sales from inception to April 2021. These bonds track the price of gold and pay interest of 2.5% delivering higher returns than physical gold. They are also tax free on maturity after eight years and investors are permitted to go for premature redemption after five years. The maximum limit for investment in SGBs for individuals has been set at 4 kg per financial year.

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