Gold can be bought in different ways. You have 7 options –You can buy-
1) Gold jewellery.
2) Bullion bars from jewelers that are part of the world gold council.
3) Gold coins issued by various banks.
4) Gold exchange traded funds.
5) Equity based gold funds.
7) Take positions in Gold futures and profit from the price movement.
The first three options are about buying gold physically. If you have bought Gold jewellery, we are sorry to say that it’s not a right move from the investment point of view because, you would have paid an additional of 5%-30% of it’s value as making charges depending upon the design and some money on precious stones used in them. These stones are valueless and do not appreciate unless it’s a piece of diamond. Making charges paid is also a waste of money. Banks charge around 5% premium for coins sold through them. Bullion bars /coins bought through WGC networked jewellers may be the better option here since; they generally sell gold for a 2% or 3% premium. So if you want to hold gold physically, it would be better to buy it from WGC networked jewellers since they are the cheapest option.
Now, physical holding of gold risky since it is prone to loss by theft / fire or such other accidents. To protect from such losses, you will have to insure it and that will be an additional annual cost to be incurred until you sell it off. The purity of gold sold by jewellers is an issue that’s hard to crack. Again, it may be impractical to store it physically beyond a certain limit and in the case of an emergency if you go to a jewellery to sell your gold, they might not accept it straight away.
After reading the above paragraph, if you think that storing gold physically is not practical, you have the last four options – Gold ETF, equity based gold funds, e-gold and futures positions in gold.
Gold ETF is nothing but mutual fund schemes that invest only in gold. One unit would roughly equal one gram of gold. These funds are managed by asset management houses. If you don’t want investment houses to get involved, you can directly purchase e-gold launched by the national spot exchange. In both the cases, you will be holding gold in electronic format – just like investment in stocks.All you need is a demat account.
One more category of electronic gold is equity based gold funds. Equity based gold fund are basically mutual fund schemes launched by asset management companies. They do not invest directly in gold (when fund houses launch direct investment in gold, they are called gold ETFs) instead, they invest in stocks of companies that are engaged in mining, extraction and trading of gold.
The last option – taking positions in gold futures – is a risky game. All the negatives and positives of derivative instruments are relevant here also. It’s would work if you can reasonably predict the price movement of gold in the short term. It’s basically speculation (or trading, if you want to call like that) and cannot be brought under the ‘investment’ category.
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