The lure of Yellow metal - Buying Gold atleast in small quantities

It is the month end. Optimistically seen,  it is the time, when people would be receiving their salaries and have something left for investment.

Those middle aged among you would be more worried of the future and would have started the habit of saving something every month.  It is an inflationary trend where the general level of prices of goods and services keep soaring over a period of time.  When the price rises, each unit of currency buys fewer goods.  I have sometime back shared something on investing on the yellow metal which some Economists feel as a hedge against inflation and safe haven in times of financial crisis.  There was a time when Gold Control Act forbade gold biscuits of higher weights.  Now it is a free market and you are allowed to choose what you want.  

Gold is glittering and investing in gold is like learning to walk (some have already started running) – starters might stumble and struggle to be steady.  A gold coin is a cute thing irresistible to look at.  The yellow metal has been used for coins from times immemorial, mainly because of its intrinsic value.  Now there are collectors’ coins and common one serving as a medium of investment.  Gold has been money for many reasons – it can be traded easily; it always has a high value to weight ratio; can be divided into smaller units without destroying; tougher to have counterfeits and the scarcity of gold has only been going up.

Of course keeping gold physically is wrought with innate difficulties.  Years ago, people used to buy gold from local jewelers – now everyone is in to that business seizing the opportunity.   As advertised often, lot of Indian banks sell gold coins.  People who have peace of mind as utmost priority savour buying here though you might pay a small extra.    Post Office sells gold coins.  A few decades ago, Post Office was the most important place in any locality.  Gone are the habit of letter writing [some of your might not even be familiar with post cards, inland letters and postal covers].  There is a fair sprinkling of websites that offer gold coins on line – legitimate ones.  There are Nation wide retailers like Tanishq and there are local famous shops like GRT, Vummidiars, Saravana – some of whom have their own branded coins.  Sometimes, buying at a local shop would be a wiser option as you would get higher return on resale when made at the same shop.

Before you rush for buying a kg of gold think of the following :

Never have unrealistic growth expectations – you don’t become rich overnight.  Value will not triple in 3 months.  Though it would sound bitter, the value might even go down.  Often the fluctuations can last for weeks or longer, the predictions that it has been steadily on the rise and might go up more soon.    The investment is to be seen more as stabilizing your portfolio and getting some % higher than the market investment return yield and not lottery boom.  

Remember that as with most investments, this attract taxes when you sell.  Mostly this should fall under long term capital gains – consult your auditor before selling in huge quantity.   Perhaps you could still make money after paying taxes honestly.

Plan your investment and keep looking for the fluctuation to take a ride on the waves.  If you have planned at a higher price, buy again at a lower price, so that your rates will average out.    The bullion is a precious metal and safe keeping might present problem, if you have more than what you could swallow.  Perhaps a bigger locker at the local bank  might be an answer.   To see reasonable protection or income, you need to plan and invest a reasonable %.  A very small amount of investment is not going to make you gleeful even when the rates increase.  

The most important thing is don’t confuse buying gold coin / bar with that of buying an ornament – a bangle, ear ring, chain all have value and would glitter when worn.  They are more of ‘neighbour’s envy’ – but not the sound form of investment.  First you are not guaranteed of their purity and next comes the hidden aspects of depreciation, wastage, making charges and more.  Have you not realized that everytime you buy gold ornaments, you in effect are paying % more than their actual weight and get % less then their actual weight when you sell.  They are means of decoaration, would please women and put a hole in your pocket – but never be carried away by the notion of investment there.  At best you can end up making your wife happy for some time.

The gold coins that are on sale are of  99.9%  finesse having been  minted of pure gold bars.  Most come with assay certificate and state of the art packaging.   Many companies claim that you can realize their full market value of the day when you want to convert them to money.  

In general, Gold has not only protected wealth but has appreciated and is an ideal gift to bestow on people whom you consider close.  They come in different size from 2g /4 / 5 / 8 / 10 / 20 / 50 and more.  These are of 24 carat and the institutions do guarantee their purity also.   If you are buying gold coins worth more than Rs.50000/-, you are obliged to provide your PAN details.
Though Bank display and sell coins, they are not in the habit of buying back and you will have to run to a jeweller for selling the same.   If you consider that a hassle, there is another popular way of investing through gold ETF which is Electronically traded funds.   There are many Fund managers such as Benchmark, Kotak, Reliance, Quantum, SBI – where you can buy units equivalent to approx 1g onwards.  The rates would more or less correspond to the price of physical gold.  

Here is the indicative list of gold coins [physical]  from various sellers  at Chennai. 

 Have you started sprinting ………. for making the buy ???

Regards – S Sampathkumar.