All that glitters isn’t an investment

Written by Lisa Pallavi Barbora

Lisa Pallavi Barbora is a Senior Consultant for Content at WFAN. Lisa is also a founder of In her earlier avatar, she was a National Writer and Consultant for HT Mint - a premier business journal in India.

October 23, 2020

Are you thinking of buying gold this festive season? Is it a tradition or perhaps a new addition? Gold also has an emotional effect on us. Makes us feel good and prosperous. With the way gold prices have moved in the last year, this link to prosperity may have gotten underlined even more.

If you missed that ride, come this festive season, you would be tempted to get on board the gold ride now. After all, a 35% rise in price in the last year is enough temptation.

The advice, however, is to not get carried away by the shine of the yellow metal. Let’s look at some facts and then decide whether to tick mark festival time gold buying or perhaps rein it in.

Rise after the lull

Although gold prices rose sharply in 2019, for roughly seven years till then from 2012 till 2019, gold prices moved sideways or lower. In September 2010, gold prices in India were roughly ₹30,500 per 10 gms and prices moved upwards of this only by July 2019. For gold that you bought in 2012, you would have to wait eight years to see this kind of return.

What you should know is that while it has a lot of ornamental value, there is no earning from gold itself. What this means is that, unlike a bank deposit which gives you interest or property on rent which gives you income or even equity stocks which give you dividends, gold has no source of income. Unless prices go up, you will not make money.

For many years it has been assumed that gold prices will always move in one direction. As mentioned above and seen in recent years, that’s not true. There can be long periods of time when gold prices don’t move up.

The assumption, however, is not entirely baseless. The reason for relying so heavily on the value that gold brings to the table is that the supply is limited and the value is pure. That’s a good reason to keep some gold in your portfolio for retaining value rather than growing it.

The last two decades, however, have seen some change in the trend of gold prices. Thus far the access to financial securities was also limited and assets like gold and property were what could preserve wealth. Moreover, the trend in gold prices has become volatile too. What can be seen clearly is that for short periods of time, gold is not a safe and stable investment. If you buy today, the chances of you seeing lower levels by next year are probably higher than the chances of you seeing a rise in gold prices from here. If instead you buy now and hold on for 8-10 years then the shine can come through.

Your jewellery is not an investment

The other thing you need to be mindful of is counting your jewellery as an investment. It’s not wrong to say that you will sell your gold jewellery only as a last resort rather than booking profits as you would in case of other financial investments. Hence, a lot of the value in your jewellery will remain unrealized at peak gold prices, unless you are undergoing an emergency.

Also, remember you have paid some making charges and a premium for design on purchase, whether you take a loan against your gold jewellery or sell it, you will not get that cost back. In some cases, like Jadau, up to 40% of the gold gets scraped out and you will lose out on resale. Thinking about your jewellery as an investment is not smart.

Where gold stands out

Your gold collection will feel like quite the treasure in uncertain times. Whenever large economies undergo stress due to external factors like natural calamities, pandemics (right now!) or even war, the price of gold tends to move up as people use it as a safe haven. It’s preferred even over cash or currency in such times; the pressure on the economy tends to underestimate the value of its currency. Thus, a solid, pure and valuable metal like gold gains demand and hence, moves up in price.

Gold is also a useful tool when it comes to preserving the value of your money against inflation. Inflation is basically the rise in prices in an economy and hence, the fall in the buying power of your money. Gold prices, over longer periods, tend to move up in line with inflation thus, preserving value. But that doesn’t mean you put all your money in gold because then you will only preserve value rather than grow it.

You may still like to take advantage of the festive season or might be in the habit of starting the new business year with a purchase of gold. Look for more efficient ways to invest in gold such as gold exchange-traded funds in the mutual fund format or Sovereign Gold Bonds issued by the Government. The latter offers a 2.5% interest coupon too along with giving you an experience of returns as you would have if you bought physical gold.

The current pandemic, if anything, has taught us that nothing can be taken for granted, least of all our financial status. Make smart choices at all times; rather than more jewellery in this festive season, focus on the long-term value that gold brings to table and invest in that.

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