Ever since the evolution of the human economy and its existence in the world, gold has been a precious metal used as a store value. Gold coins can be traced back to every dynasty that ruled over the world at some point of time. Some can argue that gold was precious as it was the only metal discovered or rare to find. With thousands of years passing by, humans evolving, economies growing and the world shrinking and coming closer through various technological advancements, one thing that has remained constant is the shine and allure of the yellow precious metal. What makes everyone to fall back on gold as an investment?
Gold is largely considered as a safe haven asset and a prefect hedge against inflation, and perhaps this is one of the reasons why gold has been working as an investment strategy for years. However, to simply be sidelined by the shine of the metal and its rising prices is not a wise decision to make while investing in gold. Considering a few more things before deciding to invest in gold and identifing the product risks as well the suitability is the ideal choice.
- Gold Stocks may seem to offer an exposure to gold but they are an investment in stocks and not physical gold. The stock prices of gold mining are totally dependent on the quality of management and the situation and hence one needs to know their risk appetite before investing in gold.
- Physical gold often seems like a headache due to the storage involved in it, and therefore paper gold is an easy answer to a hassle free experience of investing in gold without holding it physically. While this is ideal it has an increased risk of getting involved in scams due to the numerous companies floating online in the digital world. Thus buying gold online should be done through verified trusted companies only.
- If physical gold is what one feels comfortable in there storage is something to be considered. An investment in good vault or a bank locker is an extra cost that needs to be incurred to avoid losing gold to theft.
- While gold coins and bullions seem to be easiest and the ideal choices to invest in physical gold, verification and the testing of the same plays a very important role. It ensures the gold’s purity and fineness. In cases of investment in antique gold coins or buying gold jewelry especially online, a third party verification and a certification is a must to ensure its genuineness.
- While gold is viewed as a good hedge against inflation, market analysts often find gold predictions not to follow the mandate. Gold predictions are hard to make and it often doesn’t behave the way investors would want to, thus investing in a gold is a good choice by being aware about the dips and lows in the gold market.
- Investing in gold comes at a premium and therefore often the profits are reduced due to this factor.
Keep all the above factors in mind, do a bit of research and get an insight into your risk appetite before investing in gold.
Whenever you want to invest in gold, consider these following points:
a. Eventual Objective: Is the final objective is to wear physical gold jewelry? Is the objective a short term or a long term sale of gold to benefit from price rise? Is the objective just to have long term exposure to gold without any physical gold?
Hence, depending upon the objective, the way investment is to be done in gold will change.
If one wants to buy physical gold eventually, then it makes sense to buy coins or Augmont digi gold. In digi gold, customers need not bother about storing gold. Or about selling them back or taking physical delivery without any tax inefficiency.
If the objective is to buy long term exposure to gold price with strict regulations, then gold ETFs is the best. They are like shares but there are no deliveries. Also, there are management fees which make it slightly expensive. But it’s tightly regulated and hence safest.
b.Taxation: If the idea is to take delivery, then buying gold ETFs will be tax inefficient. This is because, if you sell gold ETFs, you will get money back. But before you buy physical gold with that money, capital gains tax will have to be paid on the capital gained (difference between original purchase price and sale price).
c. Regulations: The only regulation on physical gold is BIS standards hallmarking. Large bars gold by refineries have their own regulations from BIS and NABL.
ETFs are regulated by SEBI.
Jewelry schemes are not regulated.
Digi gold is not regulated but some of them have trustee companies from bank who monitor the gold in the vault.