Investor Education
Best Gold ETF, Futures, Bars and Coins Prices Online in India
Gold as an Investment
Gold is seen as an investment alternative that is immune to the ravages of inflation historically and is considered as a safe haven during the times of recession.
Usually it is witnessed as an insurance policy in adverse times. Unlike currency, coins or other assets, gold has been able to maintain its value through thick and thin and hence people see gold as a way to pass on and preserve their wealth from one generation to the another. Because of the same reason, people, fund managers and others see gold as an investment alternative.
In this article, we will know more about gold as an investment and its crucial aspects.
Pricing of GoldAs per historical data, gold was the determining factor in the value of paper currencies. Each different currency represented a redeemable quantity and amount of gold. But that ended when the USA abandoned the gold standard in the 70s and the US dollar became the reserve currency of the world without any backing of precious metal.
Gold these days is primarily set in financial markets just like other assets. In fact, about 15 thousand times more gold is traded in the markets that there is in the physical markets in the trading process.
Also Read : Digital Gold
Influencing Factors on the Gold PriceCentral bank policies:
Around the world, central banks hold gold in their reserves. Most of these banks add gold to their reserves to hedge against their dollars. Indian Russia and China are adding more gold to their reserves. RBI can purchase the gold which could increase the prices of the precious metal worldwide. Looking at the recent trend we see central banks have been buying gold at an accelerated pace and there is no specific reason that central banks will stop themselves. They also affect the demand of gold through their monetary policies with US and EU following expansionary monetary policies, it is expected that gold prices might see a rise.
US Dollar:
There exists an inverse correlation between the value of the US dollar and gold prices. The US dollar fell by 10.5% last year pushing an increase in the gold prices.
Geopolitical Tension:
The prices of crude oil have reached a new high during the current years which has raised fears of inflation throughout the world. Past trends show that the prices rise parallel with the inflation.
INVESTMENT ALTERNATIVE OF GOLD
Gold ETFs:
Gold ETFs are identical to a mutual fund which invests in gold. This is listed in the stock market. You need to purchase gold ETFs from the stock market just like a normal stock by paying brokerage fee for trading of these ETFs. The brokerage charges may vary from 0.2% to 1%.
Gold futures:
You can purchase into gold futures, These futures prices tend to track the prices of gold and the contracts have to be settled within a predefined period.
For instance, if you buy a contract of gold on September expiry, you have to make sure you settle the same by September. These are risky as you have to settle the contract, even if you are making a loss. In case of gold bars and coins, you can continue to hold the same if you incur a loss. The one merit of buying gold in the future market is that you have to pay only a margin of 10%.
Gold bars and coins:
Investing in gold bars and coins is a better option instead of buying gold jewellery and ornaments. while buying gold jewellery, you may have to bear high making charges which may vary from 10% to 20%. When you try to sell off the same, they will buy the gold at market value and not pay you for the making charges.
THE CONCLUSION
Gold is comparatively a less risky asset class but it will be unwise to invest only in gold. However, because hold is viewed as a hedge against uncertainties and store of wealth, you should not avoid it completely as an investment option. Investors tend to flock to gold when they are very scared, which boosts its value when assets such as shares are falling. It just needs to be paired with a more broad and diversified portfolio so you can merit the correlation of gold's performance.
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