There has been debate over decades whether investing in GOLD is a good option or not. Whether buying gold was a judicial investment or not. Even during the global meltdown, gold had made an excellent hedge against inflation. Over the past 20 years, even when market crashed, gold still carried some substantial value and the value never depreciated.
Now the question is that whether GOLD is a good investment or not. Well, there is no strict “YES” or “NO” to this question. It depends on how and when you are investing. For example: Now till the end of 2009, gold is sold in jewelery shops at a price of Rs 16000 – 17000 per 10gm. It is expected that the price is about to increase. In 2004, price of 10gm of gold was about Rs 6500, which increased to Rs 9000 by end of 2006 and by end of 2008 it was Rs13000. So during the past 5years gold was a good investment considering that price is hiked from Rs 6500 to Rs 17000 for 10gm – a jump of 162% in almost 5years.
But again the question is that whether it is the right time to buy gold????
Well, in the past 2 years, when the entire market went through a correction of prices, the price of gold was increasing and had not decreased. There are news often saying that gold had reached its peak in price and correction in price is expected soon. But I don’t know the authenticity of this news because I am hearing this from my jeweler for the past 1.5 years but never witnessed a price decrease rather it increased from Rs 12000 in 2008 to Rs 17000 in 2009 (considering price of 10gm of gold).
There are investment brokers who say to “Buy Low and Sell High”. Obviously if you had bought gold as investment then it is the right time to sell. If you plan to invest in gold then watch the market trend and if you notice upward movement then go for it. If you are planning to invest on gold at present then you need to deal with it meticulously.
Most of us, mainly Indians, have considered gold as a safe investment through ages. Our grandfather and father had bought gold ornaments for our grand mother and mother in order to please them. But they also knew that during difficult times these gold can be easily liquefied. There are instances when housewives sold their ornaments to support their husband’s business or other crisis situations.
But let me make it very clear that if you are buying gold jewelery as investments then you are on the wrong track. If you are buying gold as investment then it is always preferable to buy gold in form of coins or biscuits or bars.
Let me take an example to explain :
Mrs. Sen bought a gold chain of 10gm weight in 2008 and sold the same in 2009. Consider price of 10gm of gold in 2008 as Rs 13000 at the time of buying and in 2009 it is Rs 16000 at the time of selling. Making charge was Rs 200 per gram of gold.
So the total gold price in 2008 was Rs 13000.
Total making charge = Rs 2000.
Total price = Rs 15000.
While selling the chain , the jewelery shops never give the market price (This is my personal experience). Its about 7-10% less than the market price. So while selling, Mrs Sen was offered a price of Rs. 15000 per 10gm by the jewelery shop. Also while selling, the making charge of Rs 2000 is not considered by the buyer. The seller is only paid the price of gold. So in this case Mrs Sen received just Rs 15000 for the gold. The making charge and taxes are always the reason for loss.
So Mrs Sen made no profit in 1year as she invested in Gold jewelery. But if she had invested in 10gm of gold coin then her cost price would have been Rs 13000 and her selling price would have been Rs 15000. So she would have made a profit of Rs 2000 in one year.
Thus we can conclude that if you want to make investments in form of gold then it is better to buy gold coins, bars or biscuits. Investment in gold jewelery can be considered as profitable over long term.
WHEN TO INVEST
Thus only investing in coins or bars or biscuits will not make profit. It also depends when you are investing. Suppose you made an investment in gold in 1983 and sold it in 2005 then you would not have gained anything as the price of gold did not appreciate much during these 12 years. But if you had invested in 2005 and sold in 2009 then you would have made a fortune out of it as the price of gold increased maximum during this period.
Now the question still persists that “is it the right time to invest in gold?? My personal suggestion is that market is on the upward trend. Buy gold but have a watchful eye on the market. If any correction is expected or prices starts to fall then sell the gold you have bought.
Please Note: All the above prices and rate increase are based on my personal experience in the past 5 years in Kolkata. Other regions in India may have a varying gold price and making charge.