Investing in gold, whether real gold or gold-related instruments, is a difficult decision that should be taken post thorough research.
For generations, gold has been a valued commodity. It has been used as a currency and has been considered as a symbol of the rich and powerful throughout documented (and unrecorded) history. Gold’s long-term value indicates its consistency and appeal across time. It is considered one of the safest investments by investors, since it quickly recovers its value during economic downturns. Its value frequently changes in the opposite direction of stock market or economic movements.
When investor confidence is shaken, gold prices tend to rise as terrified investors seek a safe place for money pulled from the market. Gold is also a safe haven in times of inflation, since it retains its value considerably better than currency-backed assets, which may grow in price but plummet in value.
Gold Prices Today and in the Past
Investors, thinking of investing in gold, can start by looking at the spot price of gold, which is the current price at which it can be purchased and traded. The spot price of gold in India is expressed in terms of 10 grams. For example, the price of gold on Thursday, 3rd of February 2022, was INR 49,505. When looking at historical gold prices, it is easy to notice that the price of this valuable metal skyrocketed in the 2000s. According to the RBI, gold prices were, on an average, at INR 12,889.75 per ounce in 2008. Due to investor demand in gold and sentiment as the economy plunged deeper into crisis, gold prices rose to roughly INR 25723.66 in 2011. By April 2020, gold prices had dipped somewhat from over a decade earlier, but they had continued to perform well despite the economic downturn.
In the late 1970s, a similar incident occurred. Following the global price surge in the 1970s, gold fell in value for the next 20 years before rising again around 2000. During the pandemic crisis, demand for gold surged, and its price increased as well. As we have stepped into 2022, investors are still unsure whether the current rally will stay because it’s equally possible that the trend will continue or that the price could decline for a long time. However, it is important to keep in mind that while gold is languishing, not every investment will produce no interest or dividends.
Investments in Gold
Buying gold is not the same as buying stocks or bonds. Anyone can acquire gold coins or gold bullion (a bar-shaped piece of gold with a stamp) to take physical ownership of it. The purity level and the amount of gold in the bar are stamped on it. The value of bullion or coins is decided by the precious metal content of the item rather than its rarity or condition, and it varies throughout the day. Various banks, dealers, and brokerage organizations sell bullion and coins. There are also gold mining company stocks, gold futures contracts, gold-focused exchange-traded funds (ETFs), and other classic financial instruments available to invest safely and securely in gold. Investors who purchase a gold-backed ETF are purchasing shares in a trust that owns gold, but they have no claim to the gold itself.
One can also invest in Digital Gold which gives the best of both worlds, exposure to the gold prices without really holding the physical gold and options to convert it into physical gold as and when required. There are also various gold saving schemes managed by different jewellers where you can invest a certain amount on a monthly basis and redeem it into gold jewellery at maturity with certain discounts offered by jewellers. This route is especially useful for people who are looking to buy jewellery in future for marriage or gifting purposes and can start saving for them in advance. Lots of jewellers have started offering online options for investing in such schemes, where customer can invest sitting at home.
One advantage of holding Gold as an asset is that it is relatively liquid compared to other assets like real estate and can be easily monetized quickly, if needed, either through a direct sale or taking a loan against it. However, it is important for everyone to note that investing in gold with the expectation that it would never lose value is not a foolproof idea. Gold, like any other financial asset or investment, is subject to supply and demand pressures that cause price variations. Hence, it is critical to consider all risks before investing in gold or any other sector of the economy.
Best Time to Invest in Gold
Many gold proponents claim that it is a good way to protect yourself from rising prices. The facts, on the other hand, refute this claim. In many cases, gold is a greater hedge against a financial calamity than it is against inflation. During times of crisis, gold prices tend to rise. However, this is not always the case when a rise in inflation is seen. If a financial crisis or recession is on the horizon, investing in gold may be a sensible option. However, if the economy is experiencing high inflation, it may be advisable to hold off.
When it comes to investing for retirement, one needs an investment that either generates current income or is predicted to appreciate in value over time, so they can sell it and utilize the proceeds to fund their lifestyle. But it is not wise to solely rely on gold as an investment for either of these goals.
Summing Up
Investing in gold, whether real gold or gold-related instruments, is a difficult decision that should be taken post thorough research. If you decide to acquire actual gold, it is significant to make sure you deal with a reputable dealer. You’ll need to work with a broker and a custodian if you want to buy gold for your retirement account.
As a general rule, financial experts advise keeping gold to a tiny percentage of your total assets. This is considered solid advice because it acts as a safety net. If the value of all of your other investments plummets in a crash, then the value of your gold should rise, thereby preventing you from losing everything. It is imperative to keep in mind, however, that nothing is certain, so approach with caution while buying this valuable metal.
(By Vikas Verma, Co-founder & CEO, Goldsetu)
