Gold As An Investment

Among all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a way to spread their portfolio to reduce the underlying risks of the market. The gold market is subject to speculation and variations as are other markets. Compared to other precious metals used for investment, gold has the most effective safe haven and may be used as a hedge against inflation, deflation or currency devaluation.

How to Invest in Gold?

  1. Buy it directly: You can buy gold directly in the form of bullion or coins. You will then hold onto physical quantities of gold, which can be sold at a later date. It can feel good to have gold actually in your possession, but you need to be careful with it. The biggest downside is that you will have to pay to have it insured or stored.
  2. Buy shares in various gold companies: You can also purchase stock in a company that produces gold. The value of the stock is going to be strongly correlated with the value of gold itself. You may also be paid dividends on your shares.
  3. Investment in a gold ETF: A gold ETF is an exchange-traded fund that specializes in investing in a range of gold securities. Such business activities to manage risk or expand into new markets is called “Diversification”. Such diversification can somewhat minimize one’s risk.

Is Buying Gold a Good Investment?

Investing in gold could be really fruitful if you are aware of associated Pros and Cons:

Pros:

  1. Can Be Converted Into Gold Anywhere In The World: Gold can be easily converted into cash anywhere in the world while retaining its current value.
  2. Retains its value: Gold tends to maintain its value over time. Economists argue that even the price of gold is not indicative of its value. That is, even if the price decreases, the underlying value of gold does not change much.
  3. Protection against inflation in the market: Gold rises in value when inflation takes hold. Since gold is priced in Indian Rupee, any deterioration in the Rupee will logically lead to a higher price of gold. As a result, during inflationary times, gold offers a much more stable investment than cash.
  4. Gold is used as an input in various products. Since gold is used in the production of various products including jewelry and electronics, there is a reliable demand that further stabilizes the price of gold. Moreover, in times of increased demand, these markets can force the price of gold higher.

Cons

  1. Passive income is not possible in gold: Other investments as stocks and bonds may gain a portion of their value from passive income in the form of interest and dividends. However, the only return one can make on gold is when the value increases and you decide to sell it.
  2. Requires physical storage and insurance. If you choose to buy actual, physical gold, you will not only need to store it, but you will need to ensure it as well. Otherwise, you won’t be able to replace it if it becomes damaged or stolen.
  3. Increases in gold value coincide with local currency devaluation. Many economists argue that gold only increases in value when the currency is devalued or inflation is strong. Thus, critics feel that gold doesn’t offer adequate returns in other markets