Investing in Gold amidst the COVID-19 pandemic
Gold is never old. This applies to Gold both in terms of fashion accessories and for investment. Historical evidence shows that Gold has performed well during the dotcom bubble as well as during the 2008 financial crisis. The current slowdown and financial crisis due to Covid-19 presents a grim situation similar to the previous global financial crisis. Presently, with decreased interest rates on bank deposits & volatile stock markets, most investment portfolios are suffering. However, Gold prices have moved from Rs 31000+ to Rs 42000+ from Aug 2019 to July 2020. This amounts to almost a 35% gain within an year). In this newsbyte, we look at the ways of investing in gold & reasons for investing in Gold amid Covid-19 pandemic.
Traditional & Modern ways to invest in gold
Gold has traditionally been a financial support & a powerful tool to tackle the financial emergencies over the years.
The flowchart below explains the types of gold investment which an investor can consider in general.
Physical gold can be in the form jewellery which you wear or in the form coins/gold bars which are available in various options like 5 g, 10 g, 20 g etc.
However, safety, making charges, storage costs, purity & repurchase value are certain concerns to look at while dealing with physical gold.
Digital or Paper gold
You can hold your online investments in gold in a digital format which is much more cost effective and quick. You can invest as low as Rs 1 from the comfort of your home. And you do not need to worry about purity, safety and storage.
By using your stock broking account, you can invest in Gold Exchange traded funds. This is pretty similar to buying mutual fund units online.
Secondly, you may look at the option of investing in government gold bonds which are issued every 2-3 months and the window remains open for a week.
Thirdly, you can use your Paytm wallet or “GoldRush” platform by Stock Holding Corporation of India or Me-Gold by Motilal Oswal to invest in gold online.
How much to invest in Gold and what is the right way?
With global COVID-19 cases crossing the 11 million mark, the economic survival is expected to take more time. Investors meanwhile are looking at options like Gold to hedge some risk.
This yellow metal is trading in the range of 43000-47000 per 10 grams, and has rallied around 16% in the calendar year. According to World Gold Council report issued on 24th March 2020 India edition, Gold has given an average return of 14.1% annually since 1973 in rupee terms.
Due to the pandemic the Rupee is depreciating and according to Economists it will depreciate further which is a positive for gold price.
Furthermore, World Gold Mines are temporarily shut due to the pandemic and there is a scenario of low supply and high demand which will also contribute in gold prices going up.
Long-term investors may go for investing in gold up-to a maximum of 10% of their portfolio as per experts.
Amid the current scenario, the best way to invest in gold is to opt for Gold ETF (exchange traded funds) or Gold Sovereign Bonds.
In the physical gold market, the investors can face liquidity issues due to increase in gold prices whereas ETF and Sovereign bonds are tradeable at the stock exchange.
Furthermore, there is an exemption from income tax when Sovereign bonds are sold on maturity and there is no tax on purchasing of bonds as compared to physical gold.
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This newsbyte is authored by Nupur Verma. She is an active blogger and writes about topics such as financial planning, investments and wealth management.
Disclaimer – The view and analysis presented here is based on independent estimates and assumption by Fintox. The reader must rely on self – judgement for making an investment decision.