Buying Gold is considered as a prized investment due to excellent liquidity, intrinsic value and ability to protect against inflation and currency devaluation.
One of the oldest investment avenues is gold. Buying yellow metal is considered as a prized investment due to excellent liquidity, intrinsic value and ability to protect against inflation and currency devaluation. Gold is also known as a safe haven as it gives high returns when economies and markets falter.
With a strong and sustained rally, gold is breaking records almost every day, creating high interest among investors.
Here are the different ways of investing in gold and the risks associated:
Gold bars and coins
Gold bars and coins are part of bullion gold, investment value of which is determined by the value of its physical gold content. It’s a form of investment in physical gold that gives ownership and possession of the gold to the investors.
Risk: One of the risks involved is impurity in gold. Another problem involved with investment in physical gold is keeping it safe against the risks of theft, burglary, house breaking etc. Because of such risks, the investors need to make recurring expenses to hire lockers, buy insurance etc to ensure safety of the gold possession.
Numismatic Gold coins and collectibles
In some of the prosperous ancient societies, gold coins were in circulation as currency. Investments in such collector coins or numismatic coins do not qualify as investment in bullion coins, but are similar to investments in art and require additional expertise from investors. Based on factors such as scarcity or design, such coins and collectibles have an additional value beyond the value of their precious metals content.
Risk: Apart from the risks of theft, burglary, house breaking etc, it is also difficult to assess the genuineness and antique value of such coins and collectibles.
Buying jewellery is one of the most popular investment avenues in India, resulting in much higher retail demand for gold in the country in comparison to institutional investments. Along with gold content, the value of jewellery also involves manufacturing cost, which is quite significant and may vary from jeweller to jeweller. It provides higher consumer satisfaction compared to other forms of gold investments.
Risk: Apart from the purity and safety risk, investors lose the manufacturing cost at the time of resale.
Gold instruments or paper gold are Managed Gold products where the gold is stored in professional vaults on behalf of customers. Some of the popular gold instruments in India are Gold ETF, Gold MF schemes, Sovereign Gold Bond, digital Gold etc, where the investors don’t get possession of physical gold, but get the outright ownership of gold and exposure to its price. So, investors save on recurring expenses needed to ensure safety of gold.
Risk: Investors may lose money in case the issuer of a gold instrument issues the instrument without investing in gold. So, before investing, the investors should ensure genuineness and credit worthiness of the issuer.