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Thread: Why "not" to invest in GOLD

  1. #1
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    Post Why "not" to invest in GOLD

    Indians are known world over to be heavy consumers of gold especially gold jewelery. Gold in my opinion is a consumer product not an investment. When most people buy gold it is for ever and they normally end up passing it on to the next generation and never really get to take profits. An investment is where you reap profits one day or as dividends for regular income if you are retired. Buying a piece of gold is like buying a piece of metal which just sits there and does nothing.

    Its not that gold shouldnt be bought atall but it has specific purposes and does not suit the general middle class in India. What do we need? We need to invest so we can fulfill our goals in future and what gold does is preserves your capital and nothing more then that but that too in the long run. We have seen one of the longest bull runs in Gold in the recent years and for those who bought gold some 15 years ago are laughing their way to the bank but how long could this go on for? Not for long I would say. Gold is a hedge against currency fluctuations and inflation to some extent and that is all it is nothing more.

    Now compare buying a brick of gold with owning a share in a good established business or even better buy some units of some 3-4 good diversified mutual funds and let the fund manager decide for you if you dont want to have anything to do with picking and choosing stocks. You would beat gold any day. A running business will be making money for you unlike gold which would only rise in value in line with inflation and in a period of deflation if that happens in India it will loose value. Another problem with gold is that you will attract wealth tax in future and owning financial instruments do not attract wealth tax.
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    I am one of the fortunate ones who purchased some gold from Perth Mint, Australia at approximately Rs. 4800 per 10g, way back in 1995. But I am just sitting on it. So even if paper value shows 462%+ appreciation, it is still a paper value. Buy gold for jwellery and stuff and not as an investment. If you wish to buy gold for investment, here are some mantras:

    - Buy e-gold by means of Gold ETFs
    - Keep the Gold investment to 5-10% of your portfolio
    - Note that the Gold Bull run may be over and it is unlikely that we will see the 190% rise as seen from 2008 to 2012
    - Physical gold carries duties such as VAT and unless you are buying pure (.999) gold, there will be cheating when you try to sell
    - Whether there is cheating or not, buy-back price of physical gold is less than the current selling price (by about Rs. 150-200); no such issue with e-Gold
    - Physical gold carries risk; you will have to keep it in bank vault; e-Gold is theft-proof
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    Thats 18 years youve been holding that gold and the value grew by a little more then five times your initial purchase price and if you would have invested the same amount in say HDFC Equity fund then you would have made atleast 20 times (thats a guestimate) or even 25 times by now. Use one of them returns calculators and see for yourself. Not just Hdfc equity fund but most common names like Reliance growth and all that were around in 1995 aswell have done extremely well as compared to Gold and that too when Gold has had such a massive bull run that we wont probabbly see again in our life times and equites have not done very well in the last 5 years.
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    Default Re: Why "not" to invest in GOLD

    Quote Originally Posted by Admin View Post
    Thats 18 years youve been holding that gold and the value grew by a little more then five times your initial purchase price and if you would have invested the same amount in say HDFC Equity fund then you would have made atleast 20 times (thats a guestimate) or even 25 times by now. Use one of them returns calculators and see for yourself. Not just Hdfc equity fund but most common names like Reliance growth and all that were around in 1995 aswell have done extremely well as compared to Gold and that too when Gold has had such a massive bull run that we wont probabbly see again in our life times and equites have not done very well in the last 5 years.
    So true.

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