GOLD AS AN INVESTMENT – FINCAREPLAN

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gold as an investment

 

Gold was first used as currency in ancient times before the invention of FIAT currencies (Government-issued currencies). In recent decades, gold has been considered, the only hard asset of tangible property in many middle-class families. Even our parents and grandparents might have thought us to invest in gold as it is the only investment that will never give us a loss. Is it so? We shall discuss the phase of the pros and cons of GOLD AS AN INVESTMENT.

Before getting into it, dig into the past, most of us buy Gold as ornaments (22 karats), contrarily only a few people go for Pure Gold which is in the form of Coin or Biscuit (24 karats). Remember, when you acquire gold as an ornament, you have to pay an extra amount for its WASTAGE & GST.

 

GOLD AS AN INVESTMENT – WHY PEOPLE CHOOSE GOLD:

 

  • The price increases from time to time.
  • Gold is considered to be the only asset, which will never decrease in its value.
  • In India, the buying of gold is primarily associated with auspiciousness in many cultures and religions prevalent, also in wedding functions.
  • In the course of an emergency, people use their gold to pledge to get a gold loan, which is lesser than a personal loan in interest rate.
  • Families in India will take their pride and status, in the fact about how much gold actually runs through a members’ possessions.

 

ADVANTAGES OF THE GOLD AS AN INVESTMENT:

 

  • Gold is a metal that its price increases as the inflation rate increases.
  • The price of gold will be in a flat curve while the market and economy will be in a growth phase, and it will be in the growth phase while the economy drops.
  • It is inversely proportional to a countries economy.
  • It can give you a two-digit growth rate if you buy digital gold, as you can trade gold in commodity market.
  • Gold can be stored as physical, in the form of Coin or Biscuit.
  • It has faster liquidity of converting it into money.
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GOLD PRICE HISTORY DATA – LAST ONE YEAR GROWTH:      

 

In recent times, the whole world is facing the financial crisis and economic slowdown, so as in India, owing to that the current price of Gold 24 karat 10 grams is Rs. 47,819 as on 19th June, 2020. The price of 24 Karat Gold on 31st May, 2019 was Rs. 3,234. So, in the last on year it has be grown at the rate of 45%. The reason behind this is, the stock market was crashed due to the economic slowdown which happened last year post July, the gold price hiked nearly Rs. 40,000 and owing to COVID–19 pandemic situation, gold price hiked towards Rs. 47,819. In the same way there happened a gold price hike in 2009 – 2010 due to 2008 economic crash from Rs. 15000 to Rs. 22450 in 2013, which shared a growth of 27% per annum.

Note: The growth is calculated by XIRR

GOLD PRICE HISTORY IN INDIA:

 

gold as an investment - gold price history

 

Wastage was 15% of the price of gold, and GST is 3%.

Reference link for checking the history of Gold price:

 

*The growth was calculated by XIRR

GROWTH PRICE TRENDS – GROWTH OVERS YEARS:

 

GOLD 10 YEARS Price - 24 KARAT

 

  • In the above graph, we have demonstrated the price range of gold from 2010 – 2020 on June 19th. Initially there was a price hike from Rs.18935 on 2010 to Rs. 30740 on 2012 at the growth of 27.37% per annum.
  • From 2012 till 2018 the range started from 30740 to 30960, with the growth of 0.12% per annum. Even in that flat phase, there was a fluctuations of price. The price even came down to negative growth in the years 2013, 2014, 2015, 2017, for four consecutive years.
  • 2019 and 2020 till date, the price is in high growth. This is due to economic slowdown, world trade war and Covid–19 Pandemic.

Note: Like Stock market, Gold price will also fall down at some time, but while keeping it in long run, it gives a growth of 8-10% per annum.

 

gold as investment - gold price growth

 

From the above table, we could find the growth of gold price over 10, 9 & 8 years.

For an example, when we buy 10 grams of 22 Karat gold with 15% wastage and 3% GST (it was VAT earlier) for Rs. 20859.

  • The price of the same 10 gm gold is 29490 at 2018. This, the 8 years growth is only 4.42%.
  • The price of the same 10 gm gold is 31470 at 2019. Thus, the 9 years growth is only 4.67%.
  • The Price of the same 10 gm gold is 45530 on 2020. S0 the 10 years growth is 8.1%.

The ornament which you buy with the addition of wastage and GST taxes will not be considered while you sell the ornament back, they will consider only the current price.

GOLD AS AN INVESTMENT – DO & DON’T:

 

  • On the long run of 10 year period, Gold can yield 8-10% annualized return, so gold can be considered as one of the portfolio allocation on wealth creation. You have to hold and consider for long run.
  • If you can trade Gold by opening a demat account in Commodity market, where there is no wastage or GST involved, you can get the maximum capital gain in gold, please don’t trade. Invest in Gold for long run.
  • If you can’t trade as risk involved in market, you can buy physical gold as 24 karat or 22 karat as Gold Coin or Gold Biscuit, where the wastage is only 2% + GST 3%.
  • In times of any emergency, you can sell those gold coins and yield money.
  • You should not save or consider Jewels as Investment.
  • Don’t buy Gold at high price, while the price curve is in flat, which is the correct time to buy gold.
  • Don’t buy gold for any emergency, since gold is used at emergency situation.
  • Never ever keep on exchanging jewels for new models. When it comes in exchanging jewels, all the while you have to pay more interest in Wastage.

 

GOLD AS AN INVESTMENT – KEY TAKEAWAYS:

 

  • When it comes to gold as investment, you can consider it to be your part of investment, you should not invest your whole money in gold.
  • Gold should be an alternative to emergency funds, while your emergency funds exhausted in some emergency situation, you can pledge your gold and convert into money and use it for your emergency.
  • In this whole understanding, on Gold as Investment, we were figuring out the graphical, XIRR calculation to make you all understand gold is not a good product to invest in a long run, which yields less for 7-9 years period, only when considering 10 years period Gold gives 8% returns.
  • In Investment, it is not about the money you invest. It’s all about how long you invest, hold, and what percentage is the return.
  • Considering the above points, instead of investing in gold in the long run, you can invest in the equity market. Especially, in passive mutual fund (Index Funds) which can give you an annualized return of 12% P.A.
  • Above all, Gold is essential in every family. Every family should have some part of Gold.
  • Minimum 300-500grams of gold has to be accumulated by a family, which they have to consider as an emergency fund rather than an investment.

 

 

This subject is completely taken from practical sense from most of the successful financial leaders and even from my mentors and myself.

If you have any thoughts or comments please do share with us. Also, if we need to cover up on any specific topic please let us know. We will work together in bringing valuable content to enhance the wealth of your life.



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Fincareplan provides an advisory of financial, investment planning on equity shares, and mutual funds practically.
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