Should You Buy Gold This Dhanteras?

Amidst heightening geopolitical tensions across the globe and especially between North Korea and the United States, the price of gold is at its peak now. This is because the investors are realigning their money into safe havens like gold. However, India has never needed a reason to purchase the yellow metal. Apart from jewellery, it has been treated as an investment since many generations. To ease off the pressure of physical gold, Govt. of India also came up with the idea of Sovereign Gold Bonds so that the investment needs for gold can be met with this.

Current Trends in Gold

In our country, investment in gold is guided more by the emotional and social reasons than financial ones. Dhanteras is considered to be an auspicious occasion to make a purchase in gold. However, one should certainly consider if it makes sense to buy now or not. The current price of gold is Rs. 29,746 per 10 gms. In the past three months, it is almost Rs. 2,000 up from gold price on 10 July 2017 when it was hovering at Rs. 27,745 per 10 grams. It is clear that the price of gold currently is very high.

Why Should One Buy Gold?

Recent data shows that India’s gold imports in September rose 31% as compared with last year. This is because the demand for the yellow metal increased ahead of Dhanteras and Diwali. However, in spite of the high prices, it makes sense to have some exposure to gold in the portfolio. This is because it is always considered prudent to have exposure to various asset classes instead of just one. As they say, “One should not put all their eggs in a single basket”, one must not also invest all their money into the single asset class. Gold fulfills the need of diversification in the portfolio as it generally reacts in the opposite direction as that of the other investments like stocks, bonds etc. It has historically served as a safe haven for investment and thus certainly deserves a consideration as an investment. But given the consistently moderate returns, gold should not generally exceed 10% of the total portfolio.

Different Investment Options to Buy Gold

Once you have decided to make an investment into Gold, you may also like to consider various investment options to diversify your portfolio. Earlier, gold jewellery and gold bars were the only choices available. However, with the evolution of the capital market, many new investment options have emerged like Gold ETFs, Gold Funds, Gold Bonds etc.

Analysis of Different Options for Investing in Gold

Physical gold bars were costlier in terms of holding it as an investment since storage and safety expenses for the same added as the holding cost. Besides, the purity of the metal was always in question. Further, sale and purchase of gold is also liable to GST and hence, you end up paying more when you purchase physical Gold. So, instead, you can consider holding Gold ETFs, which let you have an exposure to Gold and still maintain liquidity since Gold ETFs are traded on an exchange on a real-time basis. Another attractive option to make an investment in gold is Sovereign Gold Bonds (SGBs). The unique proposition coming with SGBs is the fact that while other investing options have a definite cost associated with the investment like storage costs, management expenses, this one comes with zero cost and instead with an additional 2.5% interest per annum on the investment amount. Hence, over 8 years, the investor has already earned 20% of the amount invested besides the actual increase in the gold prices.

As such, it’s time to act prudently and diversify into gold with smart investment choices. Will you be one of those intelligent investors in gold this Dhanteras?

Simardeep Singh

Simardeep Singh is a Chartered Accountant based in Delhi. He loves sharing his knowledge about personal finance and investment.