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Invest In Gold The Right Way

Invest in gold the right way

Gold is one of the prominent forms of Investment.This is mainly because of its noncorrosive nature and timeless ability.

Some of the main qualities that make gold an attractive investment are:

1. It is durable. It does not corrode or dissolve in water over a period of time.

2. It is easily portable and can be carried from one place to another.

3. It can be easily converted and made divisible into coins, biscuits or blocks of gold.

4. It has a good value because it is rare and difficult to procure. People prefer to hold it for a long period of time.

Like any other assets gold also has its advantages and disadvantages. Some of the important things to be kept in mind while investing in gold are:

a. Most people think gold is a volatile asset but in reality it is stable. However the local currency with which we measure its value is changing constantly and therefore we feel that gold is volatile. The price of gold is directly related to the price of the local currency.

b. Since gold is valued at the individual local currencies in different parts of the world, it will always gain or lose value against one another.

c. Though gold is classed under commodities, it is neither a commodity nor an asset. It is not a commodity because it is not consumed, while it is not an asset as it does not pays returns like any other asset.

d. Gold’s value has never gone to zero. Apart from land, gold is the only asset whose value has never touched zero. Unlike land, gold is freely portable and transferable and so can be used in any economic condition as a medium of exchange.

e. Gold is excellent protector of value and performs exceedingly well in bad economic conditions.

How to buy Gold

The purity of gold is measured in carats. The purest form of gold is 24 carat, which is 99.99 percent gold. Most of the time, you see it in the form of coins, bars of different sizes and shapes and also in our favourite gold jewellery. Wedding are incomplete without gold jewellery. We buy necklaces, earrings, bracelets and other gold jewellery items. Women always nudge their husbands to invest more in jewellery, saying it is a good investment.

As it is famously said, that man will always invest in property while women will go in for investment in gold. From generation to generation, we have seen our moms hand down their special jewellery to us. Gold is one of the ways of inheriting generational wealth. So we Indians have the tendency to buy gold and hold it for a long time. India has also been the largest consumer of gold in the world. China is close behind us.

Some of the things to be kept in mind while investing in gold are as follows:

 Know the 22 carat concept.

Jewellery is not the purest form of gold. Most of the jewellery is 22 carat, while the remaining is made up with other metals like copper etc.

 Making charges.

All jewellery items charge a certain percentage known as “making charges”, which is usually high at around 10% and is arbitrarily decided by the jeweller. Most of the time, the amount you pay to buy a 22 carat jewellery item is higher than the per gram price of gold on that day.

 Attachment to gold.

We are emotionally attached to our jewellery as a result we hold it longer and avoid selling it. Gold does not earn any dividend and the only way of earning money is by selling it. Just like all other assets, there is a time to buy gold and there is a time to sell gold to make the investment profitable. If we keep holding on to it, we may lose the opportunity. So it is better to hold gold in coins and bars for investment purpose.

 International standards for gold .

You can buy gold coins and bars from any jewellery store. It will have its official price as per that day plus value added taxes. Banks in India sell gold that carries a 99.99 percent certification from Switzerland, which signifies the highest level of purity as per international standards and this helps you to sell a gold coin bought in India from a bank, in any part of the world. This increases the liquidity of gold.

 Gold Exchange Traded Funds.

Recently there has been” commoditization” of gold. We are now able to buy gold in the paper form and these are called Gold Exchange Traded Funds (ETF). These just work on the concept of mutual funds, wherein a company collects money from various people and then invests it in gold.
A Gold ETF will buy gold with the investor’s money and charge an annual fee for storage and maintenance. For e.g. banks like ICICI Bank, SBI Asset management and Kotak bank have their own Gold ETF.  Hence before investing, ensure that 99% of their holdings are in gold and only the remaining 1 % is in other assets. This will ensure that your paper gold price is closer to the real gold price.

Some other things to be kept in mind are:

1. The larger the fund, the more liquid it is to buy and sell gold.
2.The tracking error rate should be lower.
3.The expense ratio should be lower. For e.g.,If you hold 5 lakhs in your portfolio and the expense percentage is 1%, then you are spending Rs 5000/- on maintaining the portfolio.

In conclusion , we hope that the above information will help you in making an informed choice of investing in gold appropriately.

Please read our earlier article Mutual Funds – Smarter way to invest in stocks

Please check our Smart Deals.

Please click here to know more Gold investment


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