Every Indian invests in gold at one time or another. In India, Gold is revered for its rarity, its durability and its ornamental appeal. Indians are the biggest consumer of Gold albeit in jewellery form. Internationally, the IT industry and Dentistry are very large consumers of Gold.
But Gold's importance is much more than that. Answer the questions below!
Can you bet on the Rupee today?
Or for that matter even on the Dollar?
Or even Euro?
Yen, is off course out of question.
But you need to park your hard earned money somewhere.
Is there a currency out there that has survived wars and famines and centuries of history and still not lost its sheen?
We know of one such currency and that is GOLD.
For thousands of years, gold has been valued as a global currency, a commodity, an investment and simply an object of beauty. As financial markets developed rapidly during the 1980s and 1990s, gold receded into the background and many investors lost touch with this asset of last resort. Recent years have seen a striking increase in investor interest in gold.
In recent months, gold has caught the fancy of many an investor for the kind of returns it has given. But is that the reason why one should buy gold. We think not.
The Golden Question to ask yourself is this "Am I buying gold for the right reason?
Let us understand the pros & cons of Gold as an investment.
PROS & CONS OF GOLD:
Gold has historically proved to be a good hedge against inflation - Pros
It is liquid and can be easily converted into hard currency - Pros
It has ornamental value (more so for Indians) - Pros
It is readily available in standardised form - Pros
No regular income from gold - Cons
No tax advantages for investing in gold - Cons
There is a storage cost involved in preserving gold & fear of it getting stolen - Cons
In times of inflation, the smart money tends to move to gold, thereby driving up its price. Over the last couple of years, crude oil prices have rallied sharply, resulting in a rise in inflation not only in India but globally. The impact however has been varied across countries depending on such factors as the stage of economic cycle they are in and their oil intensity (per capita oil consumption). This general rise in price levels has added to the attractiveness of gold.
Thus the main and in fact only reason why one should invest in gold is that it is a very good HEDGE against INFLATION & that it is the Currency of last resort.
DIFFERENT WAYS OF BUYING GOLD
For a very long time, the only method of buying gold was in physical form. But with the advances in technology and the world of finance, it is now possible to invest in gold other than physical form.
One can now invest in Gold ETFs (Exchange Traded Funds) and not worry about its storage or security. Another advantage is that you can buy gold in very small amts of say a few thousand rupees via ETFs. Gold Bees, Kotak Gold ETF, Quantum Gold Fund, Reliance Gold ETF, UTI Gold ETF are some of the gold ETFs available in India today. Besides, there is DSP ML World Gold fund that invests in gold mining companies the world over.
Asset allocation means diversifying your money over various asset classes like real estate, equities, debt, cash and gold. We are of the opinion that every investor must have approximately 5 to 8% of his assets in Gold. However, in troubled times like these, one can increase the same to 10%. But always remember, Gold is there in your portfolio to balance it or cushion it against fall in value of other investments.
INSURANCE OR INVESTMENT
So is Gold an investment or is it an insurance policy against inflation and financial crisis. We believe the latter is true.
Gold is more like insurance in troubled times rather than investment
It acts as a hedge against inflation
In troubled times, it might be the currency of last resort