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Why Investing In Gold A Good Idea In 2019? Research Team | Posted On Wednesday, February 20,2019, 02:57 PM

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Why Investing In Gold A Good Idea In 2019?



Gold is a very precious metal. Gold is used in jewelry and ornaments. Gold displays luxury. When it comes to global consumption, China ranks first, followed by India.

India is using gold jewelry since 3900 BC. Indian households have approximately 16,000 tonnes of gold in the form of jewelry and ornaments. This is worth more than Rs 28 Lakh Crores, which is more than double of RBI’s foreign exchanges reserves.  

With fluctuations in rupee vs dollar and monetary policy, it is only wise to invest in gold in 2019. Geopolitical and economical turmoil are set to worsen and affect global markets, considering this, investing in gold would serve as insurance in bad times.

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SEE ALSO: History of Indian Economy and its association with Gold

Why Investing In Gold A Good Idea In 2019?

Why Invest In Gold?

1) Gold Maintains Its Value Over Time: Gold is an important hedge against inflation. Investing in gold does not offer high returns unlike real estate and equity, but your investment would at least be safe. Investing in gold is a boon when the stock markets are falling. Therefore, it is safe to say that gold maintains its value over time.

2) Risk exposure: Investing in gold has minimal risk. Traditionally, gold has proven to be a hedge against inflation. Moreover, inflation or deflation does not have much of an impact on gold price.

There is only one risk behind investing in gold and that is you may earn lower returns by investing in gold as compared to other investment options offering higher returns. The risk of investing in gold is lower vis-à-vis these risky avenues.

3) Liquid in nature: Physical gold is highly liquid. Physical gold can easily be exchanged for cash. This can be done in a matter of minutes. There are a lot of banks and financial institutions offering instant gold loans. There are traditional gold pawn shops where you pledge gold for cash.

SEE ALSO:History of Gold Trading

4) Extremely Convenient: It is extremely convenient to buy and sell gold in the market, thanks to its liquidity. Existence of gold equity traded funds, gold ETFs, has made it convenient to purchase and hold on to the investment in gold for short term gains. Muthoot, Manappuram and other gold finance companies have made the process of availing gold loan hassle free and easy.

Importance Of Gold In The Modern Economy

Gold plays a significant role in deciding India’s economical growth. A country’s currency is directly tied to the gold reserves of the country. This is also called bullion reserves. A country can print its currency on the basis of it’s:

1) Bullion reserves

2) Foreign exchange reserves

3) Bill of payments

Prior to this, barter system was in place under which goods were traded. Individuals found the barter system not too great and this was when currency system was introduced. Currency defines the worth of goods that is printed on the note or coin. Currency is a way of measuring the worth of goods and services both in terms of quantity and quality.

SEE ALSO:Gold Savings Schemes

Advantages Of Investing In Gold

Following are the advantages of investing in gold:

  • Proven Hedge Against Inflation: Traditionally, gold is a proven barrier against inflation or deflation. Gold is not impacted by inflation. Hence, investors need not worry for losses due to inflation.
  • Wealth Creation: Accumulation of gold is a way to create wealth. Each household in India has accumulated gold in the form of jewelry and ornaments. Indians have traditionally passed accumulated gold to the next generation.
  • Tangible Resource: Investing in real estate is investing in a intangible resource. Intangible resources are not liquid. Illiquid resources are not instantly tradable for cash in the market. On the other hand, gold is highly liquid and hence investing in gold offers liquidity and also is the safest investment option.

Ways Of Investing In Gold

Following are the ways in which you can buy and invest in gold:

  • Jewelry: This is the oldest way of investing in gold in which you buy jewelry and ornaments made of gold. Gold is extremely liquid and be exchanged for cash in the market in a matter of minutes.
  • Investing in Gold coins and bars: This is a better option than investing in gold jewelry and ornaments as there are no wastage and making charges. Both banks and jewelers sell gold coins and bars. However, banks only sell and don’t buyback these coins. These gold coins and bars are highly liquid.
  • Gold ETF: Gold exchange traded fund, Gold ETF, is a type of mutual fund. Gold ETFs invest in gold and units of this mutual fund scheme are listed on stock exchange like NSE or BSE. You must have demat and trading account to invest in gold ETF. Fund management fee is charged on investing in gold ETF.
  • Gold Fund of Funds: Gold fund of funds is a fund that invests in gold ETFs on investors’ behalf. There is no need for a demat account. SIP investments are allowed in gold fund of funds, as it’s a type of mutual fund. 
  • Equity based Gold Funds: In equity based gold funds, investors invest in companies dealing with mining, extracting and marketing of gold, rather than investing directly in gold. The performance of these gold funds depends on the performance of fund houses. As it is based on equity, investors must note that there is some risk involved in this form of gold investment. There are no listed companies in India and hence these funds are traded in international markets and are often susceptible to currency risk and equity risk.

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