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Investing in Gold jewellery, Gold ETFs or Gold Bonds? Four Things You Must Know

Investors interested in gold are always on a lookout for best ways to maximise returns. While physical gold provides high liquidity, demat gold investment options such as gold ETFs (exchange-traded funds)and sovereign gold bonds (SGBs) provide price consistency, say financial planners.
Those looking to purchase gold often wonder about the good time to buy the yellow metal as well as the taxation polity on their investment. Experts suggest refraining from buying gold on the basis of sentiment alone. But first, let’s learn more about the three basic ways of investing in gold.
Physical gold is the gold you purchase in physical form. Be it jewellery or coins or any other form, physical gold is purchased in current gold price plus ‘making charges’. This is the fee a jeweler ‘charges’ for providing the desired amount of gold in your preferred shape, a gold chain or ring for instance. It is primarily because of the ‘making charge’ that the price of physical gold varies from one jeweller to another.
Gold ETF is like a mutual fund, except that the money realized from a pool of investors goes only in gold. In other words, gold ETFs track physical gold price. Unlike physical gold, gold ETF units are determined in dematerialised or demat form. Gold ETF, therefore, requires a demat account. Also unlike physical gold, gold ETF price is consistent.
Besides physical gold, investment in gold can be made in two more basic forms: gold ETFs and gold bonds.
SGBs pay interest on gold investments, payable every six months. The rate of interest is 2.5 per cent. Gold bonds or SGBs are purchased through authorised banks, non-banking finance companies (NBFCs)or stock exchanges.
Here are five things you must know before you put your money in gold:
1. Physical vs demat gold
Investors preferring to purchase gold in physical form should look at minimising the making charges. Jewellers time and again offer discount on making charges, especially around the festival season, say experts.
It is always best to check with a jeweller about making charges on different products. “Acquiregold either in demat form or in the form of gold coins if you are purchasing from physical market.
An investor can also keep a small part of his investment to benefit from the fluctuations in gold prices by trading frequently in either physical market or futures market,” Gaurav Katariya, research head- commodities, Arihant Capital Markets, told NDTV.
Gold has been a preferred choice for investors with a low- risk appetite to obtain safety.
This is why gold and equities or equity-related asset classes have historically shown an inverse correlation, say experts. “Investment towards gold should not be on the basis of sentiment, but it must be ascertained according to financial objective and portfolio size.
That said, gold serves as a safe haven, especially during geopolitical events and domestic turmoil,” Dinesh Rohira, founder and CEO, 5nance.com, told NDTV.
3. Key factors to watch out for
Credit ratings agency CARE Ratings expects global gold prices to remain range-bound around $1,350 per ounce in the short term. In the medium term, geopolitical tensions in West Asia, increasing US government debt and rising inflation pressures, volatility and lower equity markets could support gold prices, the agency added.
“Looking at the overall geopolitical scenario and a fantastic performance in the first quarter of 2018, it seems that the yellow metal will continue its north bound journey at least for next one-and-a-half year. Surely, one must invest in gold with a mid-term outlook… say one-and-a-half to two years,” Mr Katariya further said.
4. Is this the right time to purchase gold?
Many experts advise use of gold as a hedge against volatility, uncertainty and inflation.
“After remaining flat for over five years, it (gold) witnessed a positive momentum although it is partially driven by geopolitical concerns… Further, with a spike in inflation, gold provides a good hedge and this level can be seen as a good entry point to stay invested for a duration of another five years.