In India, Festivals especially Dussehra and Dhanteras are treated as the most favorable time of the year to invest in gold. If we are investing and trading in multiple commodities, Gold is considered to be a must in one’s portfolio. Read Ideas For Investment in Gold This Festival Period in this article.
An increase of about 23% was seen in gold in the last ten months with a high of 40,000 mark multiple times in September. This good surge is dependent on the global commodity market, whenever there is a high in gold in global markets, we see a good rally in our domestic market.
Various factors affect the Gold price for example:
- Interest rate cuts by US Fed Reserve, because of the increased trade tensions between China and Us and long term bond was submitted in US markets with negative effects
- Movement in Domestic Gold market is directly proportional to the Global Gold market
- There is quite a lot of evidence in the Indian economy to prove that the times whenever the market penetrates an unstable state, gold rates are more likely to go up
- During the 2008-09 financial crisis, Indian markets corrected by 50-60% causing gold to go up by 20-30%
- During 2010-2011, When the Indian market dropped by 20%, gold again was up by 10%
- This year, Gold was up yet again against this year’s rough market
Low Demand for Jewellery for This Festive Period
This festive period, there was a high increase in the gold price, on Dussehra day the gold rate was marked at around Rs 38600/gram. With this increase in the price of gold, correction odds are quite low. This situation will be during Dhanteras and Diwali days. Additional Rate cuts like the rate cuts by the US Fed will support the current high gold rates.
Hence Professionals are suggesting to try variation this Festive period and to avoid investing in traditional gold jewelry and instead should look for investing in paralleled products like Gold bonds or ETFs.
“Gold is no doubt an appealing investment but to minimize any future risks we should adopt these non-physical methods of buying gold rather than only physical methods.”
How to Make a Good Investment in Gold?
Selling and buying the physical form of gold is relatively easy but involves greater costs and concerns related to deposits and pureness. Most of the money is wasted on making charges. We pay almost 35-40% as making charges while buying any jewelry and upon selling it the amount of making charges will not be considered in the final selling price and hence degrading the value of gold with each transaction. Another method of minimizing making charges is by dealing with gold coins and bars but it needs larger investments.
Investment in Gold Bonds
Sovereign Gold Bonds or SGBs are government securities denominated in gold which are issued by The Reserve Bank of India(RBI). This type of gold investment yield pay-out interest of 2.5% p.a. and the best part this method does not involve any administration charges.
SGBs offer a tax-free maturity amount. The only drawback involving SGBs is that they have a lock-in time of 5 years and a maturity time of 8 years. If we redeem it before its maturity, tax on capital gains will be levied.
Investment in Gold ETF
This method involves a trading account with a stock exchange broker and a Demat account. Buy and Sell of Gold ETFs are done at market gold rates. The only difference is that in this method, an investor buys a comparable value of gold but which is not in physical form.
As the gold rates deviate in the market, rates of gold ETFs deviate as well, but this method incurs fewer charges when compared to physical selling and buying of gold. The charges associated with Gold ETFs are that of broker’s charges and total expense ratio (TER).
We can invest in digital gold with almost the lowest denomination of currency ie. Rs 1. Digital gold can neither be counted as a financial product nor as a deposit but it is an easy way of trading in gold at the current market prices whenever we think about doing it.
It gives easy liquidity and 24*7 availability access. In this newer method of investing gold, the gold is virtually stored in an MMTC vault without paying any storage cost unlike the charges imposed for a locker service for the security of physical gold. MMTC stands for Metals and Minerals Trading Corporation.
The only charges associated with it are the making and delivery charges which are only levied when the investors want to transform his digital gold assets into physical gold.
Limit Gold Publicity(Exposure)
Even with the increase in rates and its firmness during bad markets, gold exposure should be limited to only 10% by the investors in their portfolio.
Gold is only like a buffer against volatility of the market movements and there is no logic to stick with gold when it’s not profitable.
If we see the return values from Gold in the last 5-7 years, there is not much beneficial return from an investor’s point of view. After the year 2011, comparing gold average returns to other entities like equity, gold stuck at about 5% in comparison to equity returns which are about 8.5-10%.
For achieving our financial targets, long term past returns of gold prove it as a non-investment class but only as protection during unstable market periods.