Ultimate Guide to gold investing

‍

For generations, gold has been a reliable investment, prized for its capacity to protect wealth and buffer against economic uncertainty. 

‍

Whether you're a newbie or want to diversify your portfolio, knowing how to start investing in gold is critical. 

‍

We'll look at the many ways to invest, the rewards, and practical advice to help you make informed decisions and safeguard your financial future.

History of Gold in Finance

‍

India and gold have a long history together, and the country's economic conditions and international factors influence gold's price patterns. 

‍

India's gold price has steadily risen over the last few decades, with notable fluctuations brought on by international unpredictability, economic crises, and inflation.

‍

The price of gold increased from about ₹3,200 per 10 grams in the 1990s to ₹4,400 in the early 2000s. 

‍

Due to pandemic-related uncertainty, gold prices rose to around ₹20,000 per 10 grams during the 2008 financial crisis and reached ₹50,000 by 2020. The demand for gold and its reputation as a secure investment are driving up prices. 

‍

Examining this historical pattern helps investors make well-informed judgements about the buying and selling of gold by shedding light on how economic developments affect gold prices in India.

‍

Reasons to invest in gold

‍

Gold is a precious metal that many Indians treasure because of its cultural significance. 

In addition to serving as a store of value, gold is integral to many ceremonies and serves as a representation of riches and rank.

‍

The low correlation between gold and equities makes it a popular choice as a hedge against market volatility. 

‍

Therefore, adding gold to your portfolio could be a more reliable way to achieve your financial goals.

‍

To hedge against political and economic risk

‍

Looking at historical data, gold investments have always been considered a hedge against inflation because its value tends to increase during times of high inflation. 

‍

As inflation is currently high, buying gold is a good option for investors looking to protect their wealth against inflationary pressures. 

‍

Types of Gold Assets

‍

Gold Bullion

Bullion is shorthand for gold in its most common form, bars or ingots. A less expensive production method is pouring gold bars and pressing ingots. 

‍

Therefore, compared to ingots, bars are more expensive due to the premium they fetch over the daily spot price of gold.

‍

Purchasing pure gold from trustworthy vendors or authorized organizations is the first step in investing in gold bullion.

‍

Benefits

‍

• Helps in portfolio diversification
• Hegde against inflation
• Safe haven against economic adversities
• High liquidity

Problems

‍

• Capital gains tax
• Storage and insurance fees
• The holding period does not generate any passive income.

Facts

‍

Although most people associate Mitsubishi with cars made in Japan, you might be shocked to hear that they also produce gold bullion bars. Mitsubishi makes its own gold bars, you know. 

‍

The company's 2005 250 kg bar, marked as 999.9 fine gold, is one bar that might be too expensive for most consumers. It is the largest produced gold bar in the world at the moment.

‍

Gold Coins

‍

Many countries around the world have minted huge amounts of gold coins for many years. 

‍

Typically, investors will pay a premium of around 1% to 5% over the gold's intrinsic worth when making gold coin investments from private dealers. 

‍

However, in some cases, the premium may exceed this amount.

‍

Benefits

‍

• Because gold coins come in smaller sizes, investing is more convenient.
• It is a universally recognised form of currency.
• Gold coins are tangible assets and have high liquidity.

‍

Problems

‍

• Insurance and storage costs
• May attract high premiums
• Gold coin investment requires a thorough purity check to avoid scams. 

Facts

‍

The first gold currency ever produced by an Indian sovereign was supposedly the Kanishka 1 Gold Dinar, which was struck in 127 CE by the Kushan king Kanishka 1. 

‍

A variety of languages, including Greek, Persian (Bactrian), Uzbek, Afghan, and Tajik, began to appear on coins. 

‍

Later issues, however, used the Persian language, which was common in the Central Asian province of Bactria.

‍

Gold ETFs / Mutual Funds

‍

For those who choose a more cautious approach, there are exchange-traded funds (ETFs) and mutual funds that focus on gold. 

‍

The investing strategies of these funds differ: Mutual funds often favour equities in gold mining companies, but gold-backed exchange-traded funds (ETFs) buy real gold.

‍

This is not the case for all funds. All of these options provide a liquid and inexpensive way to enter the gold market, making them a more diversified and, therefore, less risky alternative to purchasing stocks outright.

‍

Benefits

‍

• More liquid than physical gold
• Transparent pricing
• Less market risk
• No entry or exit load

Problems

‍

• Gold ETFs do not offer SIP. The investment amount may be higher.
• Investors may need to incur management fees.

Facts

‍

As a subset of the overall exchange-traded fund (ETF) market, the Indian gold ETF is incredibly tiny. 

‍

Spider Gold ETF, the biggest gold ETF in the world, manages more than $35 billion in assets under management (AUM). 

‍

On the other hand, all of India's gold ETFs combined manage less than $1 billion.

‍

Futures & Options

‍

Gold futures are contracts to purchase or sell a specified quantity of gold at a future date. 

‍

People often invest in futures because the commissions are very low, and the margin requirements are far below traditional equity investments.

‍

A futures option is a substitute for purchasing a futures contract directly. Option holders can purchase the futures contract within a specified duration and at a predetermined price.

‍

Benefits

‍

• Future contracts have low commissions.
• Gold future contracts are standardised. 
• Gold options leverage your original investment and limit losses. 

Problems

‍

• Gold futures and options are volatile in nature. 
• Owning gold options comes with high premium rates.

Facts

‍

In March 2024, India's F&O turnover hit a new monthly record of Rs 8,740 lakh crore, equivalent to $1.1 trillion. 

‍

This incredible increase is a marked departure from March 2019's total of just Rs 217 lakh crore, or almost $27 billion.

‍

Mining Companies

‍

Companies that mine and refine gold are likely to benefit from increased gold prices. Putting your money into these kinds of businesses can be a low-risk approach to making money off of gold.

‍

Most of the major gold mining corporations have operations all over the world. 

‍

The success of such gold investment plans depends on business fundamentals that are common to many other significant organisations.

‍

Benefits

‍

• Mining companies can be profitable during economic uncertainty.
• Mining companies offer a safer way to invest in gold than purchasing gold bullion.

Problems

‍

• This investment option may not be feasible for all types of investors.
• Investors need to carry out their own due diligence and research before investing in a mining company.

Facts

‍

According to the Indian Bureau of Mines, there are currently over 550 operational gold mines in India. The states of Tamil Nadu, Jharkhand, Karnataka, Andhra Pradesh, Telangana, and Rajasthan are home to these. 

‍

Hutti Gold Mines is the largest gold mine in India, located in the Raichur district of Karnataka.

Jewellery

‍

Jewellery accounts for about half of the world's gold production. As the global population and wealth continue to rise at a steady rate, there will likely be a greater need for gold in the jewellery industry.

‍

Gold jewellery buyers, on the other hand, have a reputation for being price-sensitive; they tend to buy less gold when prices rise quickly.

‍

Benefits

‍

• Tangible and aesthetically pleasing
• Holds sentimental value

Problems

‍

• Gold jewellery has additional making charges.
• Careful storage is necessary to prevent scratches and wear and tear.

Facts

‍

With a demand that accounts for over 25% of the world's total, India is always among the top countries in terms of gold consumption.

‍

The primary motivator here is a deep affection for gold jewellery, which plays a pivotal role in many Indian religious and festive celebrations.

‍

Digital Gold

‍

One substitute for purchasing the yellow metal in its physical form is digital gold. A customer can buy gold online and have the same quantity stored in a secure vault.

‍

An individual can buy digital gold for as little as ₹10. At any moment, customers can sell all or part of their gold at the current market price. 

‍

The government has verified that all of these gold pieces are 24 karat. There will be no room for deception because it guarantees authenticity.

‍

Benefits

‍

• Ease of exchange
• Guaranteed purity
• Secured storage in bank-grade digital vaults

Problems

‍

• The upper limit of the digital gold investment amount is capped at ₹2 lakh.
• Not regulated by SEBI or RBI.
• Digital platforms or fintech companies levy management fees.

Facts: 

‍

The World Gold Council estimates that 40 million Indians now own digital gold and that 120 million people have transacted in digital gold. 

Best way to invest in Gold

‍

Your investment objectives and available funds will determine how you should invest in gold. 

‍

Gold bullion is an option for larger investors seeking direct exposure; however, it comes with storage charges and a premium. 

‍

You can get low-cost exposure with low-minimum investments in gold-tracking ETFs and mutual funds. 

‍

You might also put your money into gold mining firms, but the stock price of these companies doesn't necessarily reflect the price of gold over the long run. 

‍

Lastly, while gold jewellery can make a lovely addition to any jewellery collection, it is not the best investment option among other alternatives.

‍

Comparison table

‍

Gold Investing for Beginners

‍

Now that you know the different ways of gold investing and which may work better for you, let’s go through some golden strategies to help you with your journey. ‍

‍

Set A Goal

‍

Similar to any investment journey, it is important to define your goals before you begin your gold investing journey.

‍

Are you looking to hedge against inflation, diversify your portfolio, or achieve long-term capital appreciation?

‍

Are you looking for quick, small returns, or are you comfortable with long-term gold investments? Understanding your objectives will guide your investment decisions and help you choose the most suitable form of gold investment plan.

‍

Finalise Your Budget

‍

Determine how much you're willing to invest in gold, considering your overall financial situation and risk tolerance.

‍

Setting a budget will help you avoid overextending your resources and ensure a balanced portfolio.

‍

Keep Yourself Informed

‍

Stay informed about the latest trends, market developments, economic factors, and various factors that influence gold rates.

‍

Global events, economic indicators, and geopolitical tensions can influence gold's value.

‍

Staying informed will enable you to make wise decisions and seize better investment opportunities.

‍

Timing is Everything

‍

Like any investment, timing is key in gold investing.

‍

While predicting market movements can be challenging, monitoring gold price trends and potential market entry points can assist you in making more advantageous investment decisions.

‍

It's important to remember that gold is a long-term investment, and short-term fluctuations are common.

‍

Research Before Investing

‍

Firstly, select the form of gold investment that aligns with your preferences and circumstances.

‍

Secondly, make sure to do thorough research on the type of investment you wish to put your money into. 

‍

Whether it's physical gold for tangibility, ETFs for convenience, or sovereign gold bonds for fixed interest, understanding each option's features will ensure your investment choice suits your needs.

‍

How to invest in gold on the Jar App?

Jar App is India’s top-rated gold-saving app that offers a range of financial services.

‍

Users can invest in digital gold, purchase gold coins, and shop gold jewellery for men and women.

‍

Our mission is to make savings easier and help each Indian own gold. 

‍

Users can start their investment with as little as ₹10 with the Jar App. You can start investing by making a one-time payment or setting up an autopay system for daily, weekly, and monthly intervals. 

‍

Our app is powered by UPI and trusted by over 2 crore users across India.

‍