Gold Investment

Gold Investment Guide – Benefits and Forms of Investment

8 Mins read

In the world of cryptocurrency and NFTs, investment has become an essential part of the day to day life conversations. A few decades back, people only had the option of securing their money in real estate or bank FD’s, but now the choices are endless. Based on your personal preference and professional arena, you can easily invest your money just through an app on your phone. But what stood the challenge of time and emerged as an ultimate winner is Gold. Regardless of your financial portfolio or investment theories, there is no doubt that Gold investment is considered one of the most beneficial and safest investments of the present-day economy. 

gold bars arranged in rows

Why Should You Invest in Gold 

Indian society attaches a lot of prestige and laurels to Gold. Just like real estate, owning Gold is also a status symbol in the quintessential civil society. However, you should not base the decision to purchase Gold on preconceptions alone. Several other reasons will logically convince you to opt for a gold investment plan

Safeguards against inflation risks

Inflation is the rate of currency value declining over the years. This means that if you invest in cash, your money will probably reduce in value with time. However, gold prices have always beaten inflation and increased accordingly with the lifestyle cost. 

It is a tangible asset

Gold can be bought and held in your hands, unlike any other investment. One significant advantage of purchasing Gold is that you don’t have to worry about its liquidity. In addition, unlike property upkeep, you do not have to invest in any extra maintenance or care. And, you are tangible means that your gold investment is safe from hackers and can not be easily erased. 

Easy to buy and sell in physical form

One of the significant demerits people face while investing in real estate is the difficulty in buying and purchasing. You can easily buy Gold from the neighbourhood market jewellers or other reputed sources who also issue guarantee certificates and purchase receipts. Even banks sell gold coins. Similarly, you can also check prices and sell Gold quickly. 

Central banks are investing in bullion assets

Global central banks have started adding Gold to their reserves since 2010. RBI has also started investing in Gold since 2018. According to the World Gold Council, in the first fiscal quarter of 2021, central banks have purchased 95 tonnes of Gold. This buying pattern indicates that investors should also be looking into gold investment in India.

There is no counterparty risk

When you purchase Gold, there are no mediators or third parties involved. The entity is yours and yours alone. Due to this factor, you can always rely on Gold in case of financial crises in your country. Also, in the past 3,000 years, Gold has not dropped down to zero. Therefore, there is always a safety net attached to Gold because it cannot go bankrupt. 

Remains unaffected by the stock market

You can describe it as highly unstable due to its constant rises and dips. But if we look at past patterns, it is pretty clear that Gold remains unaffected by the stock market downfalls or any financial crisis. Gold investment is also an excellent option for diversifying your portfolio to different assets. This way, even if the real estate or stock prices decrease, you can expect Gold to remain stable. In addition, Gold has a positive history of maintaining its price even during global financial hits. 

Easy loan availability

If you are planning to take a loan, Gold will act as collateral. In addition, most banks give easy and low-interest loans by keeping your gold ornaments. This way, you do not have to sell off your decorations. 

How To Invest In Gold 

Digital transformation has brought everything to our fingertips. The same is the case with financial investment plans. While people had to physically participate in the buying/selling process a few decades back, things are simpler now. But this also means more options and more confusion for the ordinary citizen. As the generation embraces financial literacy, it is also essential to be aware of the pros and cons of various gold investment plans. Traditionally, Gold was available in the form of artefacts, jewellery, bullion or coins. Now, you have prospective options of ETFs and mutual funds as well.

ETF (Exchange Traded Funds)

Physical Gold also possesses many challenges in terms of security and storage. If you don’t want to be involved in the hassle of the buying and storage process, ETFs are an ideal option for you. While purchasing a gold ETF, you are letting someone else buy and store Gold on your behalf. You can also sell it whenever you want without having to find a real-time buyer. In addition, gold ETF offers features like the diversification of the portfolio and high liquidity. However, there might be some expense fee included in the overall cost. As of March 2016 – according to the World Gold Council, gold exchange-traded funds (ETFs), exchange-traded commodities (ETCs) hold nearly 2,300 tonnes of physical Gold from investors all over the globe. 

Mining Stocks

Another beneficial option is to invest in gold mining companies. Here, the profit comes in as the gold prices increase. But with an increase in production, it gives a significant double effect. This means that you are not only dependent on gold prices for the profits, like in other investment options. However, mining is a risky business, and you should research carefully before going forward with these stocks. Select the option that shows a successful graph in the company. Mining stocks can also have volatile prices. Therefore, avoid small miners who are not producing much yet. According to the World Gold Council, over 300 mining companies for Gold are publicly listed and traded. 

Gold futures

Gold futures refer to the contract formed between buyers and sellers of a trade exchange. Here, the buyer agrees to a gold purchase at a later date. Here, no management fee is added, but the broker might charge an extra portion of the trade cost. Gold futures’ investors also enjoy the benefit of high liquidity. However, this might be a risky option for beginner investors. In case the price of Gold goes against the current pattern, you will still have to submit the money to hold your position in the market. 

Physical Gold

If you are planning to purchase gold bullion- like bars, coins, or pieces of jewellery to safeguard it, there are multiple options available at your disposal. However, one major con of physically owning Gold is that the insurance that comes along due to the risk of theft and robbery. Also, the only profit earned from bullion is due to the increase in gold prices. There is no effect of increased production like in the case of mining stocks. Selling Gold in the real market can also be challenging. Commonly produced gold coin denominations are 1/20, 1/10, ¼, ½, and one troy ounce. Bars are either available in grams (1, 10, 20, 50, 100, and 1,000) denominations or 1, 10, and 100 troy ounces. According to the World Gold Council, around two-thirds of annual gold investment is done in small bars and coins. 

How Are Prices of Gold Determined

US Dollar value

Gold is known to be dollar-denominated. It means that the price of gold tends to run in the opposite direction as that of the US Dollar. If the US Dollar is strong and performing good, you can expect that the gold price will be stable and controlled. Whereas, if the US Dollar performs badly, gold prices tend to go up. This happens because when the US Dollar is weak, you can purchase more gold for a lesser amount of money. This is why gold is assumed to be an inflation hedge.

Global jewellery and industrial demand

Gold is majorly used for jewellery making. However, it is also utilised for technological and industrial purposes. As of 2019, half the global gold demand was attributed to jewellery with India, China and the US being the top contenders. Based on the simple theory of demand and supply, the gold value fluctuates. When the demand is more, gold prices automatically rise.

Government gold reserves

Central banks all over the world hold both paper currencies and gold reserves. As these banks step out of the currency investment and head on to diversify their monetary reserves, gold prices increase. According to the World Gold Council, Turkish, Russia, Poland and China purchased maximum gold in 2019. The Reserve Bank of India and the US Federal Reserve of the US also hold gold reserves. When banks procure more gold, cash flow in the market increases and the supply of gold decreases. This leads to increased gold prices.

Interest rate

The interest rate also heavily determines the price of gold. When the interest rates are high, people tend to sell gold to acquire cash. The increased gold supply leads to a reduction in gold prices. Similarly, when the interest rates are low and there is more cash flow, the price of gold increases due to increased demand.

How To Buy Physical Gold 

  • Find a trustable dealer and watch out for the fraudsters who try to create a sense of urgency during the buying process. Be well-informed regarding the gold prices in advance. 
  • Find out whether the dealer is including manufacturing or distribution charges. 
  • Secure the gold storage. Safety deposit boxes in banks also come at a separate charge.
  • Go for gold insurance to safeguard your asset against unforeseen circumstances. 

Why Choose Gold Investment Online?

You get 100% pure Gold

Gold purity is one of the main concerns when buying in physical form. However, with most digital platforms, you get a BIS Hallmark certified quality. 

Maximum security

You do not have to look for a safe or bank lockers to store the metal. Your investment portfolio is safe in the digitally secured vault. 

Start as low as you want

If you’re going to invest less, there is always an option for purchasing just a fraction. 

Real-time tracking

You can track the Gold invested and its current price from wherever and whenever you want. 

Conclusion

Gold has an influential history of being used as a currency and wealth symbol for the past 3,000 years. Not only does it make for a safe investment, but it also offers high liquidity and acts as an inflation hedge. As more and more people are inching towards cryptocurrency and NFTs, the demand for Gold still stands. Gold investment offers profitable returns and helps in diversifying your portfolio. With the ever-growing technological advancements in India, there are multiple broker options for gold investment online. GoldLane is one such platform focused on financially empowering people and giving them a safe space to invest. 

Frequently Asked Questions

Question 1 – When to invest in Gold?

Answer 1 – Best way to invest in Gold is to buy small amounts over some time. This way, you can experience the rises and dips in gold prices and watch for the following pattern. When the prices of gold rise, gold-related stocks also inevitably rise in value. This might indicate fewer profits shortly but still does not reduce any long-term benefits.

Question 2 – How should a beginner get involved with gold investment online?

Answer 2: The first step is to find a reliable brokerage platform that offers safety against any risks and protects your financial interests. However, each investment option might have its pros and cons, thus making it hard for a beginner to pick one. The best way is to watch the market and consider external factors like management and production as well. Streaming and royalty companies are some of your best options. 

Question 3 – How much money to invest in Gold?

Answer 3: Gold is a volatile investment form. That being said, you should never put all your eggs in one basket. Instead, diversify your portfolio and keep 10% or less of it for Gold. Then, with time, you can build your position and change the amount invested. 

Question 4: Is physical Gold more advantageous than digital Gold?

Answer 4: Physical Gold is a tangible asset that cannot be hacked or wholly erased from the history of the internet. However, there are many challenges associated with it. For example, physical Gold needs safe storage and insurance. Also, the liquidity of physical Gold is less than that of digital Gold. 

Question 5: Does the price of Gold at any instant remain the same all over the globe?

Answer 5: Yes, the global gold price remains the same for all places. The world spot gold price is fixed. You can convert it to different currencies. 

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