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Gold as an investment- Should you invest in Gold?

16 April 2020

If you are an investor, you must have felt the pain of the falling stock prices around the globe and the heart burn it causes. In such cases, the best bet is always to invest in safe havens right? Here comes Gold investment to the rescue.

Gold and Silver have for always been the preferred form of investment for one and all.

High liquidity and inflation beating capacity make Gold a must buy. But should you invest in Gold right now amidst the increased prices?

The Gold prices in India are trading around Rs. 46,500 per ten grams and experts feel that Gold rates may each up to as high as R. 50,000 by the end of 2020. As opposed to this, Silver- which is also considered as a safe haven, is giving a poor performance. Due to this, there are doubts of whether Silver continues to be a safe haven or not. Hence, the entire burden of saving investors’ wealth is resting upon Gold.

The three main criteria that an investor looks for before investing in times of economic slowdowns are safety, liquidity and returns. Gold easily fulfills the first two criteria and while its returns may not equal the returns of equities, it definitely hedges a person’s wealth in case of any major volatility. But investment in Gold requires proper planning.

Investing in Gold can be considered as an inflation beating instrument because over the time it has been observed that the return on Gold investment has been in line with the rate of inflation. Also, Gold maintains an inverse relation with equity markets, which means that having Gold in your investment portfolio will be a buffer to the overall volatility of your portfolio.

If you are wondering on how to invest in Gold, we can help you there. The traditional investments in Gold required physical buying of Gold in the form of coins, jewelry, bullions etc. However, with time there are various new forms of investment in Gold including various Gold funds and ETFs. Let’s know more about them.

1) TRADING IN GOLD COMMODITY

Just like trading in shares of a company which involves an exchange, you can trade in Gold in the form of Gold futures contract which is equivalent to trading in physical Gold since the buying and selling takes place in the market and no physical delivery of the commodity is given. You can trade in Gold through the help of a commodities demat account. A good investment advisor can guide you with Gold trading strategies based on research.

2) GOLD ETFs

Gold ETFs are exchange specific derivative instruments in which the underlying assets are the exchange rates of Gold and the cost of one Gold ETF reflects the price of Gold on the multi commodity exchange. Just like shares, Gold ETFs are stored in demat accounts, therefore, all the risks related to theft and burglary are eliminated. Any change in the price of Gold has its effect on the ETF. It is best suited for investors who have time and basic skills required for trading. It incurs asset management and brokerage fee too.

3) GOLD MUTUAL FUNDS

Gold funds on the other hand involves investment in bullion, Gold mining and other related companies. They also include Silver, Platinum and other precious metals in the basket. A mutual fund manager usually manages the Gold fund on behalf of an asset management company. These funds don’t require a demat account and are not directly affected by any fluctuation in the price of Gold. There are various SIP options available if you plan to invest in Gold funds. There is very nominal fee required to manage the Gold funds. They are best suited for investors who expect high return by taking calculated risks.

Like all other investments, investing in Gold also comes with its own set of pros and cons. No investment ever can promise you guaranteed returns. Gold can be considered as a less volatile investment, but it also comes with its own set of risks. If you are new to the investment world, it is recommended to get your risk profile analysis done in order to get an idea of the risk that you can take in the market. There are various certified investment advisors available who can advise and manage your investment portfolios so that you can make the best out of your investments.

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As On 30th April, 2020
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