Investment in Gold: Methods and funds


Gone were the days when gold was considered to be a commodity but now it is being treated as currency. There have been many announcements from government how to invest in gold and launching many policies related to that. This resource contains information about the factors influencing the gold price, investment policies and strategies.

Introduction



The shine and the lustre of metal gold is irresistible for anyone. Whether to use it as commodity like jewellery or to use it as money. One of the statistics shows that there is approximately sixteen thousand tons of gold with Indians in form of jewellery only.

Gold has emerged to be a preferred form of investment due to its potential of price rise. There is never been seen that gold prices are dipping. It is always have a positive slope in price rise. Investment in gold will always give you return of approximately 6-7% therefore investment is always risk free.

Forms of investment in gold



1) Investment in form of jewellery:-



Buying Jewellery is the olden tradition in India. We purchase gold during festive seasons and during marriages as it is being treated as good omen. In India it is a symbol of prestige and status. It is the common form of fashion for Indian Ladies.

Advantages of buying Jewellery

-It is the most convenient from of purchasing.
-Along with the investment it solves the purpose of aesthetic appeal as well as give you a status symbol.
-It is simplest form for exchange in form of gifts during festivals and weddings.

Disadvantages involved

-Whenever we go for buying gold we have to pay for labour charges which is a loss to the customer.
-Also while going for selling there are some losses in form of weight.
-Cannot be stored easily therefore high risk prone.


2) Investment in form of gold coins:-



It is yet one another form of investment. This form is generally used for investment purposes. It is easy to store gold in form of coins. Gold coins are available in different size categories i.e. varying form 1/20 of an ounce to 1 ounce. Gold coins are available in banks, stores or post offices in different weight categories i.e. 1 gm, 2 g, 5 gm, 10 gm. However bank charge for their coins is nearly 5-10%. Also there is limitation as banks do not buy back these coins. But WCG coins which are available in jewellery shop are available in lesser premiums and can be sold at market price.

Advantages of buying coins:

-It is the easiest form of investments.
-Loss of value is not higher
-As these are available in different denominations therefore it can be afforded by different class of people.

Disadvantages:

-Safety issues are involved in storing the gold coins.
-As these have to be stored in bank lockers so there is cost involvement.
-There is always some loss in value.

Investment in form of Bars



This is also the oldest form of keeping wealth in form of gold bullion bars. These are also available in various denominations which make it ease of affordability. These are available in 10gm, 20 gm etc. These can be purchased from banks and jewellery shops.

Advantages of bullion bars:

-It is again easy form of investment. These can be order online.
-Loss of value is minimum from gold coins.

Disadvantages:

-These bars need to insured if some mishap occurs and therefore involve cost.
-Needs to be store in bank lockers and again some cost involvement is there.
-As denomination starts from 10gm so it might not be affordable for all people.

Gold certificates



In this scheme gold needs to be deposit in the banks for some period and receive gold certificate in lieu of that. Gold certificates are proof that individual is holding gold. The bank will pay premium as defined by the banks for the particular duration of time.

Advantages of Certificates:

-It is safest method of storage of gold.
-There is minimum loss of value.
-Can be replaced in form of gold or cash.

Disadvantages:

-There is low level of returns in this method.
-It is only beneficial for low level investors.

Gold Future and options



This is another option available for investment in gold. Future and options can be used to sell short and also can be used to benefit from a drop in the price of gold.

ETF funds



This is most popular form of investment. These are form of mutual funds which invest in gold only. The holdings are in form of units and are listed in exchange. Each unit will represent 1 gram of gold. These transactions are dome electronically. This is very useful of large investors. Money involvement in form of lockers or insurance is not involved.

Advantages:

-This is yet again easiest form of investment.
-Investment is 100% pure.
-Safety is of no concern in the investment.
-Pricing is available in stock exchange. Therefore it is very transparent form.

Disadvantages:

-The only disadvantage in this is that investor do not have physical possession of gold.

Criteria to choose gold ETF



1) Fund track record

It is very important to choose proper fund for investment. While going for any investment do check the track record of previous three years. Though gold funds almost have similar performances in terms of returns as they are not very aggressive in market.

2) Types of funds

There are many other gold funds apart from ETF. These are not ETF but these funds invest in ETF. These funds are like international gold funds or funds of funds.

3) Trading volumes

Trading volumes matter a lot in the market. It is always better not to choose a fund which have low volumes in the market.

Decision factors for buying gold



As there are many speculation is investors mind while going for any investment and especially in form of gold. Below are some of the factors:

1) Risk involvement

There is not much risk involved as the statistics in India revealed that there never huge deflation in the market. The only apprehension involved is to take decision in buying other commodities which can give higher returns.

2) Current income

Buying gold is not a form of current cash. When holding it in physical form we are loosing some money in form of storage costs and risk involved.

3) Liquidity

Compared to all other investments gold has proved to be the highest in terms of liquidity. Gold can be converted in to cash at any point of time.

4) Convenience

Gold is convenient form of investment. With the advent of gold ETF's it becomes very easy in terms of transaction. There is no need to keep it physically as it is available in electronic form.

Why "Yes" to gold



• As the dollar is getting weak due to national economic policies gold price may keep on rising. Therefore it is a good way of investment.
• In the bull market Gold price appreciation makes up for lost interest
• Gold funds are meant for long term investment with uptrend with bullion bars.
• As the consumption and demand is high and supply is limited prices will tend to go up.
• Gold funds are making a record since 2007 and are still trending upward.
• Commodity prices are directly related to gold price index.
• Central banks in many of the countries have stated to increase their gold holdings resulting in increase of gold price.

Why "No" to gold


• Gold does not pay direct income and interest. Therefore it may not be very lucrative option for many investors.
• Only recently gold have taken new heights in the market otherwise it was standing in bear market.
• As gold funds have made big returns over the past five years, so may be they can dip at any point of time.

Conclusion



Gold is now becoming a best form of investment in the market though it has also risks involved as other investments. But if investment is done carefully it can give big returns. Last one year data shows that Gold ETF are giving even 25% returns in the market. Therefore we can invest in this festive season and can bring happiness in our lives.


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Comments

Author: DINESH XAVIER11 Apr 2014 Member Level: Bronze   Points : 2

I think gold as the safest instrument for investing.From BC to AD, gold has been seen as an good investment.In the sub heading of "NO to gold" I do not know how much years you have taken for study. For a long term, gold never dips and always it has its own demand among the people. So, gold always appreciates.



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