Is Gold a good investment?

Gold is the metal that is least available on earth. It is also a metal that never goes out of the fashion market. Since metal is not commonly available, the demand for gold has increased the price throughout the years. It is not just valued as metal or ornament but is also a popular form of investment. This metal has offered an eye-catching return for the past years. It has been one of the oldest and safest investment options with the potential for high and stable returns. This is what attracts investors to invest in gold.

The most traditional and direct way to own gold is by purchasing physical gold ornaments, gold bars, or gold coins but these must be stored safely. Over the past few decades, several new methods to invest in gold have been developed in the economy. In the previous year, even when the global economy was going through a recession period gold stood in the market without much of a fall. In the last one-year gold funds have offered an average interest of 26.84%.

(Source: MarketWatch)

Factors that influence the price fluctuations of gold:

• Demand and Supply

• US dollar value

• Inflation/Interest Rates

• Printing of money

• Import Duty

• World economic situation

• Reemergence of COVID-19

• Indian Jewelry Market

• Government Reserves

Methods to invest in gold:

1. Buying Jewelry

This is the most traditional and common way to invest in gold. Jewellery accounts for approximately 49% of global gold production. This percentage is expected to increase with the population growth and wealth growth. Indians always cherish possessing a lot of gold as jewellery and even a lot of families treasure gold for ages that are passed on from one generation to other as a form of an asset. Nowadays most of them do not prefer this option due to storage and security issues, outdated designs, and high costs. Making charges on gold jewellery is also an issue since it is a costly affair. Gold can be brought either from jewellers that are close by or buy it online from the jeweller’s site.

2. Buying Gold Bullion

Bullion is a precious metal weight that has been refined and stamped. Gold bullion has the fineness and weight of gold that can be purchased at the current price of gold. Exchange-Traded Funds(ETF) are used to invest in gold bullion, this gives the investors access to the gold bullion market. Indian gold coins and bars are 24 karat purity, 999 fineness, and hallmarked with the BIS standards. They are distributed only by Minerals and Metals Trading Corporation (MMTC) recognized outlets and specified bank branches. Buying gold coins or gold bars is always considered an asset since they carry a legal tender face value. Gold bullions can be purchased from jewellers, banks, non-banking finance companies, or even e-commerce websites.

3. Digital Gold

Gold, gold coins, and gold bars can be purchased online. This can be done through mobile wallet platforms like Paytm, Augmont, and more. It is considered the best effective method of investing in gold in small amounts. There is no need to physically store the gold. The gold purchased will be kept in electronic or Demat form and can be freely converted into physical gold. The purchased gold can be sold anytime according to the prevailing market price. Each unit of digital gold is valued at 24K 99.9% purity. The quality of the gold will always be guaranteed. According to the platform the investors use the gold can be redeemed as coins, bars, or jewellery. The investment happens online according to the market prices. Most of the investors choose digital gold over other investments as it offers all the benefits of gold in a much more convenient and cost-efficient manner. Digital gold is the best investment option for investors who want to invest less.

4. Gold ExchangeTraded Funds

This method is preferred by most investors nowadays as it is a cost-effective and storage-effective method as compared to the others. The Gold Exchange Traded Funds (Gold ETF) investments happen through NSE, BSE, and other stock exchanges where gold is the underlying asset. Gold ETFs are purchased through the establishment of a Demat account, and their units are traded on the stock exchange. The transactions are done with the help of stockbrokers. One gram of gold is equal to one unit of gold ETF at the time of purchase. The cash market is where these units are bought and sold.

5. Sovereign Gold Bonds (SGB)

This is a scheme introduced by the government to provide people with an alternative option for holding physical gold. It was launched by the Gold Monetisation Scheme in November 2015. SGB’s are issued by the Reserve Bank of India (RBI). They are available in both paper form and Demat form. SGB’s are liquid as physical gold and can be used as collateral for loans. The returns of these bonds depend upon the market price of gold which was initially invested. These bonds can also be freely transferred to anybody.

(Source: Financial Chronicle)

Advantages of investing in gold:

1. Easy to start off

Gold investments require only a small amount of money to start initially. Investors who do not prefer risks and a slow constant method of saving for the long term always prefer gold as an investment method.

2. Hedge against inflation

The gold market does not get affected that much and shows positive results even when there’s an economic downturn or market volatility as compared to other investment options. It is considered to be the most effective inflation hedge.

3. Easy liquidity

Gold can be very easily converted into cash equivalent at any time. Investors can liquidate their gold assets whenever a need comes up. The strong and high global demand for gold makes it easy to get converted into cash anywhere across the world.

4. Tax benefits

Some of the gold funds are treated as a non-equity from the tax perspective. After one year of investment, investors can claim a long-term capital gains tax benefit on these funds. So gold investment can turn out to be a tax benefit for the investors.

So is gold a good investment?

Gold as metal can never go down in value. It's also one of the most popular ways to invest. There are a lot of other precious metals just like gold in which investors choose to invest, but compared to all these metal investments, the gold market has always been most effective. It is a mainstream luxury good with high liquidity. Gold can stay stable during economic downturns, making it one of the safest and most common investment options.

Investors who prefer lesser risk with a stable income can always choose to invest in gold as it serves all the requirements. Investments in gold also help to diversify the investor’s portfolio. Gold has a global value which makes it, even more, safer to invest.

Even when there is uncertainty in the market due to the COVID-19 pandemic, gold has managed to have a strong performance amidst all these uncertainties. As the financial uncertainty continues by crashing the economy we can still see that gold stands out of all of them. In 2021, financial analysts expect gold to reach even higher as compared to the present situation.

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Author - Aleesha A Vithayathil

Content Writer at Escribo