Introduction

As we are heading towards the wedding season, I thought why not a blog about everyone’s favorite yellow metal (Gold).

Gold is considered as an auspicious metal in India where it is compared with Goddess Laxmi.

Gold might be an investment for many but does it really yield returns?

Let’s see in this blog!!!

Gold as Investment

Gold is considered as the most popular metal as an investment. 

Investors generally buy gold as a way of diversifying risk, especially by means of futures contracts and derivatives. 

Although the gold market is subject to speculation and risk volatility similar to other markets but when compared to other precious metals used for investment, it is the comparatively most safe haven across a number of countries.

Gold can be invested in any forms like by buying jewellery, coins, bars, gold exchange traded funds, gold funds and gold sovereign schemes.

The performance of gold depends on several factors like inflation, global trade of the metal, and other geopolitical issues.

History of Gold

A shiny rock was found in a creek, thousands of years ago, and that was introduced as gold for the first time. 

Gold came into existence as a form of yellow nuggets. 

Soon it started becoming popular with the human races with its colour, brilliance, great malleability and resistance to tarnish.

Gold has been regarded as equal status with money and has been a relative standard for currency equivalents specific to economic regions and countries. 

The history of the gold standard, its behavior as a reserve in the central bank, its correlation with other countries suggests gold as currency rather than the commodity.

Gold had a relative standard and stability towards economic growth of the country as like the US Dollar and hence it was tied to the US Dollar. 

Source: https://www.goodreturns.in/personal-finance/investment/how-gold-prices-have-moved-in-india-in-the-last-10-years-1196803.html

Impact of Gold imports for the economy

Indians love gold so much that it has now reached a point where the gold imports have become more expensive. 

Due to high demand for gold the government had to import large quantities from foreign countries to sustain demand and supply curve, thus bringing down the rupee’s value.

Gold imports directly affect the current account deficit (CAD) of India.

In fact, gold is the second-most purchased overseas commodity after oil. 

Imports were so high that the then-Finance Minister, Mr.P. Chidambaram had to appeal to Indian consumers to try and resist the temptation to purchase gold as the amount spent on its import can be used for other infrastructure of the country to boost its economy.

Gold as a better investment

1. Better Investment tool 

Whenever there is uncertainty in the economy globally there will be more chances of crashing of equity trade markets. 

By going through the facts and past trends, we can always be assured that even during these unpredictable circumstances, gold has always remained stable among all in the trade market and helps to manage the economy.

2.  Helps to hedge against inflation

Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.

Gold always holds its value for generations hence it is considered as a safe asset.

Gold has always been used as a hedge against inflation by lowering the purchasing power of the dollar as both share an inverse relationship. (When the dollar strengthens, the yellow metal falls; when it weakens, gold soars.)

3. Portfolio diversification

It’s always better for an individual to have a diversified investment portfolio with a combination of assets/stocks/equity/Real estate along with liabilities like loans/debentures/government bonds to manage the financial risk aftermath and also at the same time to enjoy the tax exemptions.

Especially having an investment in gold as certificates/future contracts will help you to avoid the loss that can happen due to uncertainty in any other kind of asset due to various external and internal reasons.

4. Tangible asset

Gold is a tangible asset i.e., it can be bought and sold any time without much paperwork or stamp duties unlike other assets.

5. Liquid Asset

After the pandemic, investment in gold is on rise due to its stability and tangibility compared to other commodities in the trade markets. 

In the World Gold Council (WGC) website we can check and track the transformation of how it has become the second most liquid asset following S&P 500 stocks. 

The precious metal’s average daily trading volume for the last one-year period through September 28 was $183 billion, compared to the S&P 500 with nearly $235 billion in average daily volume.  

Is gold a dead investment?

1. Emotional attachment

Most of the people especially, we Indians, have a traditional outlook towards gold, which is;

• It is a simple and useful investment which helps us to protect against bad times.
• We Indians always have an emotional attachment with the gold jewellery especially the antique jewelleries passed on from generations.
• It is again a status symbol in most of the celebrations in India especially in weddings.
• So ultimately, we always think a lot about selling our physical jewellery if taken in an investment sense.
• So, it is considered as a dead investment as it never yields anything.

2. Security of physical gold

Unlike other assets, the maintenance and the security costs of physical gold jewellery, coins/bars are high as it has to be stored safely in a locker and also the maintenance charges are more.

3. No yield of returns

The reason why gold is a dead investment is that it belongs to a class of investments that will not yield any returns.

Unlike other investments like shares or bonds or deposits or lands where you yield a certain percentage of return after specific years, gold doesn’t yield any value.

Gold will stay in the same pile of gold no matter how many years.

Conclusion

In today’s fast paced world with the overall World’s economy being so unpredictable, everyone looks forward to safe reserves with them, that can be liquidated at any point of time and also can have the maximum benefit of fund growth.

Thus, the status of the metal called Gold is no more a mere metal piece but has become a symbol of reserve strength to everyone globally, through its mere possession.

But again, whether you treat it as a better investment or dead investment is up to an individual as the factors for investment portfolio or attachment to gold will vary based on each other’s perception

Buying physical gold jewellery will not yield anything to them rather buy gold future contracts/derivatives or gold exchange Traded funds in papers which can yield you better than physical form.

So, think wisely before you invest in gold as “All that glitters are not gold”

Hope you enjoyed reading this