Is investing in gold good? Gold is not an investment at all. It is a dead asset, it doesn’t generate returns like stocks, rental units, businesses, etc.
You should not hold Gold at all! wait, wait! What if I say I don’t have one or two reasons but 10 reasons to invest in Gold?
But Warren Buffett said Gold is not an investment at all. Following Warren is good, but we should make the decision to know what works for us and not.
Warren Buffet – he has billions of cash piled up. What about you & me? Do we have so much cash? At least $100,000 or $10000 in your bank account?
Most of us have been struggling to keep money in our bank accounts for more than 10 days since the day we received our paycheck.
What if an emergency arises on the 20th of a month? Your immediate response is to swipe your credit card or borrow money from friends and family.
This situation can come over and over again. Swiping your card can get you into serious debt and asking money now & then destroy your self image and respect among your family & friends.
So solution? Build an emergency fund! If you are someone who quicky spends your money or cash.
Then buying Gold systematically can be a great option.
Most of us have emotional bond on things we buy with our hard-earned money, so there is good chance you won’t sell your gold jewelry for reckless shopping spree.
But you can tell me Gold is not an investment at all! You are right in saying that. But Gold protects your dollar value & can be a great savior in times of emergency.
First and foremost thing, As retail investors we should be aware of the fact there is no such thing as perfect investments.
Well, Investments are meant to grow your money or net worth. Point taken! However some investments are there to mitigate risk by providing decent price appreciation to its investor over time.
Like how stocks, bonds, and real estate have their own risk and benefits, even Gold has its own.
In this article, I am going to share my own views on whether is gold jewelry a good investment or not.
For simplicity’s sake, I avoided bringing the various macroeconomic factors and focused solely on an individual investor’s point of view.
Let’s get started!
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10 reasons to invest in Gold
1) Borderless Currency:
Gold is accepted by every country and its government. Whether the country is capitalistic or communist, Gold is revered as valuable metal.
In times of war, millions of people leave their home country behind. I remember many people from Colombo immigrated to India during the period of 2005 to 2008.
Few immigrants becomes a owner of business , some owns hotel in Chennai, at the same many immigrants were residing in refugee camp.
How is it possible? The reason why Few immigrants became entrepreneurs is simple. They had Gold and sold it start their new life in India!
2) Excellent Liquidity:
Converting Gold in to cash is not a hassle at all.
Unlike real estate and land, you don’t need to wait for months and years to sell. You can sell your Gold based on your emergency.
In real estate you can’t sell one bedroom but you are forced to sell it as a whole unit. But your Gold jewelry can be sold in part or full as per your needs.
3) Getting the right price:
The price of a stock and Gold appears everyday on your screen, but not so with real estate.
If you ask five different people who is living on the same street to the name the price of house, each one will say a different price.
Because most people have an imaginary price value of their real estate holdings. So when it comes to selling their real estate, most people will be disappointed to see the price that the prospective buyer quotes.
Due to this, you are worried about getting the right price of your house and land.
But Gold eradicates the whole vicious cycle.
Even if you sell your old gold jewelry, you will get approximately 10 to 15 percent discounted price from the current market value of Gold.
No matter what day it is, you need to worry about getting the right price of your gold jewelry.
4) Emergency Fund:
Gold can be great source of emergency fund if you feel uncomfortable with the risk associated with bonds and liquid funds.
You can keep part of your paycheck to buy Gold coin or Ring (depends on your choice). As you keep doing it, you can’t help yourself from accumulating good nestegg of Gold for your emergency needs.
As hold on to it, the value of Gold appreciates over time.
5) Loan against Gold:
If you are self employed or doesn’t have regular income and don’t have a proper credit score.
The Bank doesn’t care about the above points when you pledge your gold for cash.
There are many banks and gold finance companies issues loans against gold. As the loan to value (LTV) of gold is less, interest rate the bank charges on you would be less.
LTV of gold increases, the interest rate charged by bank will be more. This LTV is determined by the central bank. In India’s case, RBI is the central bank.
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6) Better Returns:
Gold provides better returns in times of economic downfall.
In times of war & Covid, people flood to Gold considering as safe heaven than stocks & bonds. Due to it, the price of gold usually in upswing during bad economic cycles.
During the last 30 year period, Gold generated a 7.70% per annum compared to 10.9% return of S&P 500 in the same period.
It also should be noted that Gold outpaced the returns of high grade corporate bonds by 2%.
7) Hedge against Inflation:
As cost of living (inflation) increases, the price of gold surges with rising cost.
There are numerous studies & thesis, gold has some degree of connection with inflation. Lets us leave the complex variables alone.
But what we have seen is people run to gold to protect the purchasing power of the fiat currency during times of high inflation. Might be due to excessive buying, the price of gold may rise.
In 2022, Gold generated over 12% return, where in which inflation rate is 9.5%.
What I know is, Gold is a store of value for the past 5000 years. Unlike fiat currencies, there is only a limited quantity of gold available in Mother Earth.
8) Portfolio diversification
Gold can be great diversification for your over all portfolio. Why?
In times of market crash, the price of Gold surges. This way you can protect your overall returns from maximum drawdown.
Whenever bad things happens people run to Gold. I think that’s an easy way to remember.
Also you can buy gold etf called as paper gold in your brokerage account. But loan against gold etf can’t be availed unlike physical gold and gold jewelry.
9) No specialized knowledge required
If your are a individual stock picker, option & future trader you need to keep with trends, micro and macro factors, reading the various charts patterns and well versed with balance sheets.
All these skills takes significant amount of work , time & energy to become good at it. But to buy and sell Gold, there is no specialized knowledge required.
10) Passed on to future generations
I remember one of my aunt passed down Gold jewelry worth $230,000 to her Grand Kids. (Gold price on today’s market value)
Gold is an asset like house, farmland and stocks can be passed down to future generations.
Buying small quantities of Gold every month can become a great wealth.
So what are you going to pass to your future generations?
Is gold jewelry a good investment or not?
Gold Jewelry can be a great store of value. 2/3rd of the gold mined today is consumed in the form of Gold jewelry.
Things to watch out before buying Gold Jewelry:
- Avoid designer jewelries.
- Avoid buying gold with diamonds & gems (gems has less resale value)
- Buy simple and plain gold jewelry (ring, chain, bangles)
If you buy Gold jewelry for investment purpose , purchasing by the above points can add extra milligrams in your pocket.
Making Charges & Taxation:
Usually, the Jewelers charge somewhere around 8 to 12 percent as making charges on the gold ornaments we buy. You can bargain to keep the making charges as minimum or if you know any gold manufacturer, you can buy your Gold with very less making charges.
Apart from making charges, you are mandatory to pay the tax as by the government regulations.
Gold Etf vs Physical gold:
If you are worried about theft of your precious jewels. You can store them in a bank locker.
But storing in bank locker comes with rental charges. Banks charge rent based on the size of storge box you chose for storing your valuables.
These rents are charged on annual basis.
If you feel these making charges , taxation and storing them is too much, then simply go head and buy Gold etf.
Gold etf is a paper gold which tracks the price of gold on day to day basis. By buying etf, you are simply buying gold in electronic format.
These removes the hassle of theft, storage and marking charges etc.
There is no free lunch! as usual the Mutual fund houses charges expense ratio for the Gold funds.
Also keep in mind, when you are selling your Gold etf units it attracts capital gain tax.
The only disadvantage of buying gold etf is you can’t avail loan against gold etf.
Normally banks and gold financing firms, give loan only for gold jewelry. If your motive is to get loan against gold, then buy gold etf and sell them in your time of need to buy gold jewelry and pledge them.
Summarization:
- Gold price raises with cost of inflation
- Gold price raises with bad economic climate like high inflation rate, market crash, war etc.
- Loan against gold jewelry can be availed but not with gold etf.
- Gold has given 7.7% return per annum for the past 3 decades.
If you are still confused with Is buying gold jewelry a good investment or not?
I let you decide for yourself.
Above are my 10 reasons to invest in gold, if I miss some points please mention it in the comment section. Thank you for reading!
