Buy and invest in gold: Here's what you should know

Dubai - Give your portfolio the Midas touch


Suneeti Ahuja Kohli

Published: Thu 8 Apr 2021, 7:02 PM

Last updated: Sat 10 Apr 2021, 8:03 AM

When it comes to investing, no other asset prompts more emotional reactions than gold — especially among the Indian and the Chinese communities. Its safe haven status has made it an alternative to stocks and bonds in many households.

A lot of women plough their savings in gold over the years and realise profits by trading old jewellery for new. “I have been buying gold jewellery and coins for more than 30 years. I have passed on big, chunky jewellery to my daughter as wedding gift. Some of the bullion was used to fund her higher education expenses,” says Kamlesh Kapoor, a homemaker.

The popularity of the yellow metal is high on institutional level with central banks keeping gold reserves and companies investing in gold ETFs (exchange traded funds). From an investment point of view, gold prices are up more than 346 per cent in the last 20 years. Comparatively, the S&P500 has given over 252 per cent returns, and the BSE Sensex is up over a thousand per cent in the same period.

Should you cash in on low prices?

“There’s greater buying interest among the millennials. They see value in gold jewellery which doubles up as a fashion accessory and an investment that will appreciate. Now that the price of gold is relatively low, we are seeing higher purchasing activity on retail as well as wholesale side. I’ll suggest people to buy in small quantities rather than waiting for a significant drop in price,” says Chandu Siroya, vice chairman of Dubai Gold & Jewellery Group.

A cardinal rule of investing is to never put all your eggs in one basket. So while the current prices might be tempting, be mindful of diversifying your investment. “The price of gold moves up as the cost of living rises, which makes it a good investment vehicle. A 5-10 per cent exposure is good for a retail portfolio,” says Abheek Saxena, a Dubai-based financial planner.

Ways to buy gold

Jewellery is the most popular choice and yet it is not an investment. Making charges are a drain on overall costs, which can be used to buy extra grams of gold through more legit ways. Physical gold also needs safekeeping and can attract tax when transporting from one country to another. Meanwhile, here is how you can invest wisely.

1. Gold ETFs: This is a cost-effective way of investing in the yellow metal. ETFs are traded on the stock exchange, just like stocks, and mirror the price of gold. You can buy them through brokerage accounts or banks. Just be mindful of the management charges of the firms you are dealing with. Investments in ETF can be made on a monthly basis or in lumpsum.

2. Bullion: Gold has virtually no correlation with movements in stocks, which makes it a good cushion against the volatility in equity markets. Besides, coins and bars eliminate extra charges (read making charges), give you pure value for money, and work well in the long run. Its safekeeping, however, can incur extra cost, if opting for vaults and insurance.

3. Stocks of gold-mining companies: One can also invest in stocks of gold-mining companies, directly or through gold funds offered by mutual funds. A word of caution: goldmining stocks are more volatile than gold prices.

Take your pick and give your portfolio the sheen of gold.

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