Is this a good time to invest in gold?


#1

Gold price has come down to @ Rs.2400 per gram. Is this a good time to invest in gold? Or is it likely to come down more? Or gold is lacking luster as an investment mode? Please advice


#2

Yes. The current gold price is the lowest price since July 2010. But that doesn’t mean that gold is lacking luster, because the demand of gold is much higher than the supply.

As prices are lower now it is a good time to invest in gold. However, if you are opting gold as an investment, it is ideal to keep into within 20% of your investment portfolio. If you are investing in gold at the current price and if it hits its previous high price in say 3-4 years, then also one can earn a 27.9% return, ie, returns at par with a bank FD. If it crosses the previous high, then you can enjoy a higher return.

However, if you are purchasing gold just for investment sake, it is ideal either to go for coins and bars or investing in gold ETFs, than buying jewellery. This is because price of jewellery includes making charge and VAT (Value Added Tax), which in turn reduces the profit.


#3

Hi Nisha,

Investing in gold through coins and bars is the traditional way of investing in gold. This might have storage and security issues. If you invest in gold Exchange Traded Fund (ETF), which is a type of Mutual Fund that tracks gold prices, you will be able to store your investment in demat form.

Gold ETFs are, therefore, Mutual Fund units, which offer returns in tandem with gold prices. ETFs track gold prices closely with minimal difference between spot prices and ETF rates. The minimum investment is usually equal to a gram of gold, which is quite affordable. The value of one unit (NAV) is equivalent to 1 gram of 0.995 purity gold (approx), which changes in line with gold prices. Gold ETFs entail brokerage costs besides the expense ratio, which is deducted from the invested amount, in so that the returns may be less than the increase in the price of gold. Please note that you will need a demat account to invest in gold ETFs.

Investors can invest in the precious yellow metal on paper, courtesy the Sovereign Gold Bond Scheme, which has a lock-in-period of 5 to 7 years. Sovereign bonds issued by the RBI (on behalf of the government) are denominated in grams. The minimum denomination permissible is two grams, while the maximum is 500 grams. One of the biggest advantages of sovereign gold bonds is that investors not only get the market price of the yellow metal at maturity, but also an annual interest of around 2.75%. You don’t need a demat account to invest in gold bonds.

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Cheers,
BB Expert