Investment in Gold

During the peak time of coronavirus pandemic gold dominated the markets with a record breaking surge in its price. The unprecedented health emergency saw financial markets in chaos and investors gripped in fear of losing their investment. Once again they found gold as a safe haven and parked their money in the yellow metal not only to remain safely invested but also to make money out of it. Precisely, the year 2020 saw gold glittering and registering a record breaking annual return of 31 per cent with prices going up to Rs.56000 level in August.

Let’s discuss the glitters of gold in the context of our own region (J&K). Kashmiris have always viewed gold as one of the most valuable commodities and own it mostly to hedge during the times of any crisis.  Our elders tell us stories how gold has proved a gainful wealth insurance instrument during the times of crisis, be it Indo- Pak wars, natural disasters or political unrest.

   

Gold has been an integral part of ourculture. Nothing has threatened our love for gold. It’s unique that mostly we own gold in the form of wearable wealth, like necklaces, bangles or earrings and very less as depreciation-safe bars or ingots. Such a treasury is a symbol of generations of patience, thrift and, of course, risk-averse genes. Our great-great grandparents, who bought gold instead of having a piece of land, knew that if they managed to hang on to the gold, it would stand their off springs in good stead.

Buying gold jewelry may not be called an investment in rest of the world, but in our culture, it’s one of the most valuable investments. It has not only brought riches to the people but also rescued them during the times of crisis. For a Kashmiri gold jewelry is the best way to preserve and invest wealth. And investors here have always felt that whenever they need money, they can sell their gold to generate cash. This is the way our parents and grandparents have always done it.

In succinct, gold is a store of value. We only use it when we really need money. We use it as collateral for any medical emergency or other emergency, a wedding, or in construction of a house. Even we sell some gold that we own for higher education expenses of our kids.

It’s interesting that  we typically would not sell gold just because the price is high. If gold makes a new high, we won’t get inclined to sell it, either. Of course, we would be happy if the price goes up. Precisely, I think we’d be best served viewing it as not just a potential money maker but as protection against the rabid inflation and crisis like ongoing coronavirus pandemic.

How did gold perform in the year 2020 amid Covid crisis?

Coronavirus pandemic created havoc in financial markets as fear of losing money gripped investors and they began to reassess their risk mitigation measures. After the financial crisis of 2008, investors again banked upon the gold to take support from a sense of risk aversion. During the year 2020, we witnessed a global equity selloff and investors parked their money in safe-haven bets like gold.

Notably, after the launch of Covid protection vaccines, the equity market is on recovery path now and this has now slightly impacted the surge in investment in gold. 

A data shows that  gold posted second best annual return and clocked a return of 31 per cent, making 2020 its best year since 2011, when its price had appreciated 38 per cent. Let me share MCX data which shows annual returns of the yellow metal rising from 20.71% in 2019 to 31.05% in 2020. In 2018, annual returns on gold were just 7.11%. Themetal gave negative annual returns to investors  in the years 2017(-1.61%), 2015(-6.53%), 2014(-7.86%). These figures reveal huge performance of the gold in the last five years. The prices of the metal doubled in five years as it jumped from Rs 25,686 in 2015 to Rs 50,151 in 2020.

So, in uncertainty times gold prices shoot up.If analysts are to be believed, gold is poised for further peaks in the near future.

Notably, we have observed in Covid crisis, gold demand spikes in times of crisis or uncertainty, especially if equity markets tumble. In this situation gold has proved a safe haven. It also gives a sense of stability as investment in gold is insulated from inflation and its value isn’t easily depreciated.

When is the best to buy gold?

Gold is as good as money and is used as storage of wealth. The performance of the metal over the past two decades reveals that it has continued to increase in value. Even if, at times, its value has dropped, it has always not only regained its price position but also gained more spectacular heights. In lieu of this price attitude of the metal, the right time to buy gold is anytime.

Besides, it depends on one’s ability to buy and retain gold as an asset. To derive maximum benefit, one can go for the steady accumulation of gold as an asset creation. So, don’t wait for prices to come down in order to buy it.

In succinct, we have witnessed greater upward movement of gold prices than the downward movements. So, this also means anytime is a good time to buy gold.

What is the right time to sell gold?

It simply depends upon your needs and I don’t think one sells gold because of its high value. So selling of the gold does not depend upon its price. There must be a purpose to hold gold, like retaining asset value. At the time of need one may need to utilise some of his assets and at that moment one may sell some gold to negotiate his needs. In other words, a high or low price of gold is not a reason for selling gold.

What is Gold Fund?

Gold fund is means of investment in various forms of gold. It can be in the form of physical gold or stocks of gold mining companies. Gold funds which invest in physical gold offer investors the convenience of buying pure gold at low cost; the units of which are linked to the market and can be sold anytime.

Returns on investment in gold mining companies dependent on the performance of these companies.

What are Gold Exchange Traded Funds (ETFs)?

Gold Exchange Traded Funds, another form of gold funds, are an electronic, hassle-free manner of investing in gold. These are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock ExchangeLtd. (BSE).Every Gold Exchange Traded Fund unit is backed by 99.5% pure physical gold.

One Gold Exchange Traded Fund unit = 1 gram of gold.

What is Sovereign Gold Bond?

Sovereign Gold Bond (SGB), a government security denominated  in grams  of gold, is one of the favourite routes for retail investors looking to take exposure in gold. There is a dual benefit in investing in SGB as investors stand to gain 2.5% per annum fixed interest on their investment and the rise in the value of Gold once the bond is redeemed. Sovereign Gold Bond 2020-21 is issued by Reserve Bank of India (RBI) on behalf of the Government of India. Here, the risks and costs of storage are eliminated. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.

What are monthly gold savings schemes? Is it a smart way to buy gold?

For people who can afford even a small amount every month, gold jewelers have placed special monthly schemes where the investors put in a fixed sum every month and redeem it in form of jewelry after 12 months. For example Tanishq Golden Harvest  scheme which is considered a smart, secure and convenient way to own the Tanishq jewellery you desire. The scheme envisages that you can buy more than what you pay for, because Tanishq will add a special discount upon maturity.You have to invest a certain amount every month, for 11 months. The last instalment, i.e. the 12th instalment is paid by Tanishq

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