Market Commentary 17 Aug 2017
Today, there are all sorts of innovative alternatives to physical presence. Learning a new language, buying your next great outfit, speaking to colleagues or friends living millions of miles away- it can all be done in a few clicks, without ever leaving the comfort of your home. Even when it comes to financial matters, we often make investment purchases without holding the asset physically.
Take the example of a mutual fund. You invest in thousands of assets indirectly through a fund. But what you hold is an ‘electronic receipt’ of ownership. The same goes for stock market investments. You buy shares but rarely hold the physical certificates.
In the same manner, you can invest in gold without having to go out and buy physical gold and store it with yourself.Investing in gold without buying it:
To buy gold, you head to the jeweller or bank. You weigh the gold, check its quality, look for a hallmark and karatage, and then pay for it. In such cases, you purchase gold worth at least a few thousand rupees. After all, even the lightest gold coin weighs 1 gram, which can cost nearly Rs 3,000 . Gold jewellery, meanwhile, is likely to weigh a lot more.
But here are three important factors you must consider when buying gold:
You can do this by investing in gold without physically buying it, through these options:
Let’s suppose you and your friend head to a jeweller and buy gold coins weighing 5 grams each. You, however, travel to another city for a month. So, you request your friend to store your gold coin too. But this does not mean your friend owns the coin. You hold the bill that mentions your name as the owner. So, while you travel, all you have is a piece of paper that names you as the owner. All this while, though, the gold is not with you physically.
Something similar happens when you invest in products that are backed by gold. A gold fund or Exchange-traded Fund (ETF) pools money from thousands of investors like you. They then buy gold bullion on your behalf. Depending on how much money you have invested, you get allotted investment tool units. Each product unit is equivalent to a unit of gold in grams. Every ETF unit you hold is thus ‘backed by gold’. So, while you do not have the gold with you physically, it’s stored on your behalf by the Fund house.
Even the value of your investment is linked to gold. So, every time the price of gold increases, the value of your gold Fund or ETF holding rises too. This way, you continue to benefit from gold without physically owning the gold.
It’s a new world with new ways of investing in gold. These gold-backed investment options can make life a lot easier for you, allowing you to benefit from the reliable economic value of gold. The cost of investing in such options too is low and is often very convenient.
Refers to the ability of gold to generate liquid cash much quicker than any other investment avenue. Gold is one of the most highly liquid investments that one can make, especially in India.
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