Why invest in gold ?
Different types of factors state why people should invest in gold. Here we are going to discuss five main reasons why people should invest in gold. People are now investing in gold to overcome their financial backlash. It has also been seen in the recent decade that instead of using gold for decoration and jewelry purposes, people choose to invest in gold for various reasons.
Here, we give five main reasons why one should invest in gold.
Wall against inflation
When the price rises, the currency value goes down. Since the longer period, all the currency has been evaluated in value connected to gold. So people choose to hold their money in form of gold. If the price of the gold remains high for a longer
period in the economy, then gold becomes a vaster wall against inflation conditions.
Gold is one of the assets which is real, so it creates awareness among the people for their safety of investor. While one of the best things about gold is that it could be easily bought without much hassle. For the same reason, the other assets
might create security issues but gold is safe, so there is no such uncertainty with he buying of gold.
For portfolio diversification
It has been predicted by many experts that gold is very beneficial for a portfolio diversifier because of its lower negative relation with all other main assets. As per the rule, gold does not show any statistical substantial relation with the main
classes of assets. Some of the experts even suggest that the capitals are under burden when the
value of the share market is going down. But Gold preserves your portfolio from volatility.
When the investor is in a financial crisis and he has a shortage of money then gold tend to have much faster liquidity than the other assets available in the market.
There are other assets in the market which have a lock-in period but the gold investment does not have a lock-in period except for governor gold bonds. The amount of cash usually depends on the purity of the gold. The purity of the gold is
usually decided if your gold is real or not. If the purity of gold is of higher percentage, then gold is real whereas if the purity of gold is lower percentage then gold is fake. Factors like brand decide the market price of gold. If one of the investors does not want to sell his gold then he can have a gold loan also.
The average demand for Gold in India
The demand for gold in the country has seen an increase in the recent decade. Talking in brief, gold jewelry contributes to the highest percentage of gold demand with over 53 percent of total demand for gold. However, the jewelry
sector also registered a decline in recent years. Next comes the investment sector with over 30 percent of gold demand and this is constantly increasing. They are then followed by the use of gold in the technology and industrial sector with
nearly 10 percent of gold demand and 6 percent of gold reserved by the central bank.
How to buy gold?
Gold can be bought in two forms – physical and paper gold. As on paper gold, you can buy through the (SGBs) sovereign gold bar and (ETFs) Exchange-traded funds. In the market, you can buy paper gold by mutual funds which later invest in the (ETFs) exchange-traded fund. There are also gold mutual funds that allow you to invest in international gold mining companies. You can buy physical gold in the form of gold coins and bars and jewelry. To buy physical gold you can go to your nearby goldsmith shop. While some of the shopkeepers allow online orders on websites also.
Gold exchange-traded funds (ETFs)
A different form of buying gold rather than the physical gold is through paper gold which is an exchange-traded fund. The paper investment usually happens on the share market BSE or NSE. In buying the gold there is a high initial value and when
you sell the gold you also have to give the selling charges which go on owning the jewelry, coins, or bars an extra advantage to the low-cost of gold ETF. The clarity in price is another advantage of buying the gold. The price at which the customer has bought the gold from the market is the nearest actual cost of the gold.
To buy paper gold you only need the Demate account and trading account with the broker of the stock market. One may either buy in bulk sum or even at regular duration through the organized investment plan. You can also buy 1 gram of gold.
Even there are no entry or exit charges but there are different types of costs along with ETFs. The first one is an expense ratio that manages the fund and it always low as compared to the mutual funds. The second one is broker cost that should
be always compared with selling or buying golds ETFs stock. The third one is not technically a charge effectively returns is tracking error. It rises due to the funds expenditure and holds the cash does not reflect the price of gold.
Drivers of gold price performance
It is to be mentioned here that gold is determined by the performance of the dollar at international levels. There exists an inverse relationship between the dollar and the price of Gold. When the dollar falls in the market, the price of gold
soars high and it is this time when the demand for gold increases.
Economic growth and market uncertainty
Similar to what we observed in the Gold price and dollar relationship, the same nature is followed here. So if there is an economic uncertainty or stocks get worsen, the gold price rises high whereas if stocks perform well then the gold
price drops drastically.
Gold prices are also affected by the flow of assets and the trend in price.
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