Investing in gold is a sound decision. You may ask the question why you should invest in gold when there are many other investment opportunities. Well, one of the compelling reasons for investing in gold is the demand for the yellow metal has always been more than its supply. The demand is more than 15% of the world supply of gold. Indians have always been the largest buyers of gold. Now the Russians and Chinese have also become interested in the yellow metal. This alone will increase the demand further for the metal. Everyone of us know that when supply of a commodity is not adequate to meet the demand the prices rise till the supply and demand equal. This strengthens the reasons for investing in gold.
Gold prices are also linked to the strength of the USD. When the USD weakens the price of gold tends to rise. The governments are the largest buyers of gold. Most of the Latin American countries have started buying gold. The price of gold is expected to rise also because the cost of production is rising, says a Multi-Commodity Exchange (MCX) official. Moreover, activities in many African mines have reduced due to strife, adding to the low supply situation.
You can invest in gold by
- Buying gold ornaments/jewellery
- Buying gold bars, coins and biscuits
- Buying gold stocks from the stock market
The disadvantage of buying gold in the form of jewellery is that its resale is not always a profitable proposition. The best way to invest is buying dematerialised gold from a commodity exchange as this has many advantages. The National Commodity & Derivatives Exchange (NCDEX) has introduced 100 gram gold futures. With this, investors can take positions in gold and will have to give or take physical delivery on the contract's expiry.
The exchange also provides an easy avenue to enter and exit the market as you can always square off his position before the contract closes. Dematerialisation of gold eliminates risks related to physical storage and theft, reducing paper work and facilitating easy transfer of holdings through the electronic mode.
Gold Exchange Traded Funds (ETFs) are another way to invest in gold. The first Gold ETF was launched in February 2007. Being ETFs, these funds are listed and traded on the stock exchange i.e. investors can buy and sell them like any other stock on the stock exchange, on a real- time basis. Hence, Gold ETFs offer a rather unique investment opportunity to investors who wish to invest in gold
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The best place to buy gold bars and coins if from banks. This is very easy now as banks have started retailing gold bars and coins to customers. Almost all banks do this business.
Bullion experts recommend that it is best to buy gold from a reputed jeweller. Banks that sell gold bars charge a premium as high as 15 per cent for providing you with a 'certificate of purity', but you are assured that the gold is pure. Leading jewellers in all cities also sell pure gold bars, but most do not give a certificate with it. When it's time to sell your gold, the bank does not buy it back and the jeweller that you sell it to has no use for your certificate. You end up paying a premium for no real value addition.
If you buy gold bars or coins from reputed jewellers, not only do they buy it back from you, they also give you the prevailing market rate for it. Jewellers like Tribhovandas Bhimji Zaveri have their own certificates of purity, just in case that piece of paper makes you feel more secure.
In the dematerialised form, gold can only be bought in the commodity exchanges. But make sure your payments are made by cheques and don't forget to take a receipt. It is in all ways very similar to buying and selling stock and Index futures.
Most of the investors invest in gold to hedge against inflation and add stability to their investment portfolio.
How much gold should you own? That will depend a lot on your risk appetite and long-term investment objectives. You should have no more than 5 per cent of your assets in gold. This may sound like a tame number in these times when gold is on a high, but over the long-term being over-invested in gold can pull down your over-all portfolio
Investment Nuggets - Investing in Gold. It's no secret we are living in troubled financial times. Over the past year we have witnessed the failure of storied financial institutions, record home foreclosures and an almost non-existent credit market. It has been again and again established that Investing in Gold is the safest. Today with Demat and ETF - Exchange Traded Gold Funds - it is very easy to invest in gold. You can buy and sell gold on the click of a mouse.
