A rush of gold funds and consistent rise in the price of gold has led people to believe that gold is a great investment tool. But there is a downside to gold investment too. And this downside is with reference to physical gold purchase.
Lots of people buy physical gold in the form of ornaments. Their main purpose of buying jewellery, apart from the social need for displaying it, is that it should provide security at times of crisis. And gold loan is a new fad. But what many people don’t consider is that, not many jewellers or goldsmiths buy back jewellery. And that’s a big negative. So, that kills the liquidity factor.
Even if we have a proper certificate or even if the jewellery is purchased from a branded store or a well known jeweller, people refuse to buy it. Small time jewellers just don’t want to touch and pawn brokers downgrade it and give a very low value for it.
So now, what does one do? At times of crisis, you run from pillar to post but no one buys back the jewellery from you, then where’s the security in buying gold?
Investing in gold is a good thing, but make sure that you buy gold coins. Its much easier to sell away a coin than a jewellery piece. The reason for this is, the ornament sold may not be a design that’s in vogue. The goldsmith may have to melt the jewellery and make different ornaments out of it, so that leads to wastage. Hence, gold coin is preferred.
Gold fund is another option. Since its a fund, you can sell it anytime and get back cash. Even if you sell it within 12 months of purchasing it, you will only suffer an exit load of 1-2%, but at least the liquidity factor remains.
The last option is of course gold loan, in case you want that piece of jewellery back! But if you need that jewellery and love it so much, you would not pawn it in the first place.
Any how, gold investment should be only 10-15% of the portfolio. So, invest wisely in gold.