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Digital Gold vs. Physical Gold: Which one to choose?

4 Mins read

Physical gold or digital gold, both are ways to invest in a common commodity: Gold. So, what’s the major difference? Which one should you choose? Should you choose both? We have listed all the information for you to make an informed decision

Contents

  • Introduction
  • What is Digital Gold?
  • Advantages of Digital gold
  • What is included in Physical gold
  • Advantages of Physical gold
  • Conclusion

Gold’s demand is from many sources: as an investment, a reserve asset, jewellery, and in technology. It is highly liquid, carries no credit risk, and is scarce, historically preserving its value over time.

Gold is a Strategic Asset
Gold can play four fundamental roles in a portfolio:
1. a source of long-term returns
2. a diversifier that can average out losses in times of market stress 
3. a liquid asset with no credit risk
4. a means to enhance overall portfolio performance
– World Gold Council. 

On the other hand, the method of buying Gold Investments, which involves going out to visit a jeweller and trusting them with the purity of Gold, comparing market prices, etc., might not be very complex but a very time-consuming process. As a result, the fast youth of today’s era who have no time to spare find such investments an outdated concept.
Consequently, this age-old practice of buying Gold in India is gradually heading towards a newer, more digitalised version of the same.

Investors increasingly recognise gold as a mainstream investment; global investment demand has grown by an average of 15% per year since 2001 and the gold price has increased almost eleven-fold over the same period.

What is Digital Gold
Digital gold is actually Gold which is bought online from a service provider. The service provider then allots physical gold to you and stores it in secured vaults. This process is audited regularly. 

As the world is rapidly moving towards digitalisation, the process of investing in Gold has turned digital too. People can now sell and buy Digital Gold as and when they want. It is an instant process, and the platforms that assist digital gold investments make sure that you have a great purchase experience.

Investors don’t need to worry about the purity and safety of the gold purchased. The service provider checks the purity on his end and stores your gold in safe insured vaults. When the investor buys gold the service provider buys equal amount of gold, checks purity and stores it. When the investor sells the gold, the provider sells it in the backend. For all these services and seamless investment experience the provider charge 2%-3% as a management fee, storage costs and insurance.

Advantages of Digital Gold Investments

  • You can buy Digital Gold anytime, anywhere, without having to visit any jewellery store or seller’s office.
  • There is no minimum amount that you would need to save up to in order to buy Digital Gold.
  • You can sell or buy digital Gold at any time instantly, without any waiting time.
  • Your Digital Gold is always safe and secure and backed by physical Gold at your vendor’s end.
  • The purity of Digital Gold that you purchase is always mentioned by the seller before you purchase it.
  • You can order your digital Gold in physical form at any time, and it can be delivered to your doorstep.
  • Buying and Selling Gold instantly allows you to redeem your returns almost instantly.
  • It is so much easier to keep a track of the amount of digital Gold that you own through the platform that you sign up on.

Physical Gold Investments

Physical gold includes gold coins, gold bars and gold jewellery. Physical gold is often bought to consume rather than invest. Buying gold jewellery on auspicious occasions and gifting gold jewellery to loved ones is a part of culture in India.

Gold jewellery has to be bought from a jeweller while gold coins and biscuits can be bought from both jeweller and banks. Usually BIS hallmark on the physical gold indicates it’s purity. Physical gold is highly liquid.

In 2020, 88 per cent of the total annual production changed hands every day. It is hardly possible to imagine a higher degree of liquidity.

Arnulf Hinkel, Finance Journalist

There are a few shortcomings of buying physical gold as an investment. The gold rates vary with states and even cities across India. You have to pay 20-30% making charges. Storing the gold jewellery is stressful and expensive. Sellers integrity is an important factor and authenticity of gold must be proven while selling your jewellery. You cannot buy physical Gold for small amounts. You would need to save a considerable amount of money before you can invest in physical Gold.

Advantages of Physical gold

  • Physical Gold is considered to be the most valued and precious metal for gifting. It is also considered a ritualistic gift in Hindu weddings and other events.
  • Gold ornaments are evergreen and are often passed on from generation to generation as inheritance and a gesture of love.
  • Physical Gold Investments are the least complex forms of investments as all you need to do is to visit a jewellery store and buy it or sell it.
  • Private investors can access gold bars or coins directly in times of extreme crisis and thus hold a liquidity reserve outside the financial system.
  • You can obtain gold loan on your gold jewellery and raise funds in the time of need. Gold loans are a savior for many in rural as well as urban India.

Conclusion

Both the forms help you invest in the same commodity. So what’s the major difference? The overhead charges. If you are thinking to buy gold as an investment and store of value then physical gold won’t help because you will lose making charges while selling plus you need to prove purity of your gold jewellery. But for consumption purpose, in the form of gold jewellery, physical gold is the best choice

On the other hand, digital is for those who are looking at gold as an investment, who want to earn profit by selling it after few years. It is also relevant to those who are confused about their purpose of buying gold. How? Because, in digital gold you don’t pay any extra charges while selling, while buying you pay only management charges (2-3%) and if you later decide to convert digital gold to jewellery then you can easily do it at partner jewellers

So, the choice depends on your purpose of buying gold. What’s your purpose? Leave us a comment

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