Home > Your Money > How to make the most of high gold prices, we find out
How to make the most of high gold prices, we find out

Have you only thought of gold in the form of jewellery for an occasion? Well, gold prices in India reached Rs 51,833 for every 10 grams today. This information can change how you think of your investments. Here’s what you need to know.

Gold prices

Gold prices in India continued their rally from last week, mirroring the global price trends. They are up by about 30% since March. Gold is considered a hedge against market crises and also a safe haven investment. Often investors move their money to gold during market turmoil, causing gold futures (a deal to trade gold at a certain rate) and even jewellery to be high on demand, leading to high prices.

But why are gold prices in India high this time?

  1. The most significant is the continued global effects of the COVID-19 pandemic. Until the pandemic is truly controlled and there are signs of economic improvements, analysts expect gold prices to remain high.
  2. Adding to this is the heightened tensions between the US and China on several fronts, including the handling of the coronavirus situation and a security law for Hong Kong. Latent trade tensions also persist, a volatile situation for financial markets.
  3. Stimulus packages (such as in the US, Europe or India) are leading to very low-interest rates. This causes investment into gold, an instrument that benefits from such situations and is not as volatile as market-related instruments.

gold investment

Analysts across the world believe that demand for gold will further increase, since slow growth and inflation could affect fixed-income investments, globally. The liquidity aspect adds to its popularity as well. Now, how do you jump on the bandwagon?  Physical gold in the form of coins, bricks, and jewellery is not the only option. In fact, making charges on jewellery increase costs and reduce resale value, if you are seeing it as an investment.

There are ways to gain from the yellow metal, without storing it physically

Sovereign Gold Bonds: Issued by the Reserve Bank of India, these bonds are listed on the National Stock Exchange and Bombay Stock Exchange. These bonds can be bought from banks, stock exchanges, designated post offices, etc. You can begin with a 1 gram investment up to 4 kgs of investment. These bonds have a tenure of 8 years, and you can exit only after the 5th year. These are not always available and the RBI notifies whenever a subscription is due. You will earn interest on the bonds each year and it is paid at maturity.

Gold ETFs: Exchange Traded Funds are similar to stocks. You will need to have a demat account to invest and sell these funds. You can initiate buy and sell transactions of units of Gold ETFs at any time. The money will be invested in standard gold bullion of 99.5% purity. Many funds houses provide Gold ETFs for you to pick from. What’s more, you can convert your ETF units into physical gold based on the limit set by the fund house.

Gold Mutual Funds: These may sound like ETFs but are not. You do not need a demat account to buy gold mutual funds. Gold funds are mutual funds that invest in various forms of gold – physical gold, shares of companies engaged in the business of gold mining and gold ETFs. However, in India, most fund houses further invest your money to buy units of gold ETFs. There are two key differences. Gold ETFs and mutual funds are priced differently, one a real-time stock exchange view and the other a daily NAV (net asset value). You will also have to pay an ‘exit load’ when you sell gold mutual fund units.

Digital gold or e-gold: You can get started from as low as Re 1 to buy virtual gold. You can buy gold from mobile wallets such as Paytm, GPay and Phonepe, but purity may differ. Other investment platforms such as Paisbazaar, Groww and Fisdom also offer digital gold, some even offering SIP for gold. However, this may not earn interest such as on gold bonds, but you will make a profit when you sell the gold at higher prices.

Financial advisors warn on the overuse of the asset, though. “Strategically, 8-9% of your entire investment portfolio in gold is considered reasonable. While gold appears to grow in the short term, studies highlight that returns from equity investments are far superior in the long run,” says Varun Krishna vice president at Wealthy, a wealth management platform.

Pictures courtesy: Getty Images

Anam Naqvi

Anam is an astute writer who aims to demystify personal finance and wealth management for the common man. She has written on geopolitics, economics and politics for the Economist Intelligence Unit before moving to personal finance content strategy. Her penchant for storytelling and conversation has resulted in a podcast about human stories called “Sapien Story”.

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