Investment Options in Gold

Here are four possible investment options in Gold

Click to Enlarge

1. Jewellery

Most popular and easy to buy, this is the most inefficient gold investment. When you buy jewels you not only pay for the gold, but also pay making charges and the manufacturing wastages incurred by the gold smith, besides the taxes. Also, jewellery is normally made out of less pure and the deteriorating quality of the gold. Another concern is that physical gold requires security (greater risk).

2. Gold coins / Gold biscuits

Available with many banks like ICICI, BoI, SBI etc for sale with a premium of about 10% in sealed packages. It is certified by the authority and hence there is no worry about the purity. You may be able to sell them back to the bank or any other trader at the prevailing market price with no premium of course. Security concern is also applicable in this case.

3. Gold funds

Mutual funds invest in commodity gold / related industry scripts. This is an indirect paper trade similar to any other mutual fund. You buy units of Rs.10 each and the fund will invest in companies who are into gold and related commodities. There is no need to monitor the gold price (the fund manager's headache!) with a service cost of about 6 %.

4. Exchange traded funds - Gold BEES / Kotak BEES

This is the best bet for a cost effective investment. Gold Bees is listed in the stock exchanges (like any other stock) and traded on a daily basis. It tracks the gold price closely within a margin of +/- 1 %. The advantage of this fund is the liquidity (lots of buying and selling) of the asset, so you can buy or sell the gold in units of 1 gram. Pre-requisite is that you may need a Demat and trading account with a broker. No hassles about the purity of the gold or the wastages involved!

Investment in Real Estate, NEXT WEEK.

All that glitters is GOLD!

Image borrowed from Wiki

In India, Gold has been a symbol of richness and prosperity since ancient times; recent times have given Gold an additional Investment sheen. Investors view gold as an ideal way to insulate wealth from inflations. Here are some of reasons.

Over the years, gold has also shown a strong negative correlation with other investment options like stocks, bonds and US Dollar price. As in the case of stocks, the balance between supply and demand has a key influence on the price of gold, but the key players in Gold are different.

The existing stock with the world’s central banks and International Monetary Funds are the main supply sources. Banks across the world procure and stock gold to minimize(hedge) the risks they face with their other investments. Gold sales by the banks can lead to a sudden increase in supply and pull down the price. Uncertainty in the value of the dollar, volatility in the stock market or political crisis in the country can prompt banks to lean towards gold as an investment option.

Gold mining companies, the primary of gold supplier also base their production decisions on price trends.

The London Gold Fix is the most commonly followed benchmark for gold prices. Recent years have seen increased investment in gold commodity and gold exchange traded funds, which invest in physical gold. India being the world’s largest gold jewellery market, affects Gold demand significantly and thus the price. But investment demand more than jewelery demand govern gold prices.

Investors need to keep watch on other key macro factors that have an impact on gold prices- trends in the US dollar, crude oil prices and global economic or political events.

Click to Enlarge

Attention Indian investors : In dollar terms, gold has given a return of 19.5 per cent this year, but with the rupee appreciating by 10.9 per cent, domestic gold prices have gained only 6.6 per cent.

For Indian investors to capitalize on the global increase in Gold prices, it will be advisable to invest in Exchange Traded Funds like Gold BeES that follow global trends.

By allocating 5-10% to Gold, you would have a 'safety net' for your equity investments.

What are YOUR investment options?