Investing in Gold – Myths Vs Facts

Investment

In India, buying gold is amongst the oldest means of investment. Irrespective of social strata and economic differences, people invest in gold. Even the illiterate consider it as a valuable means of investment due to its quick liquidity. It can be converted into cash in no time.

With increased awareness in recent times, people are looking past the advantage of liquidity. The common opinion on gold investment are:

  • The returns on gold investment are poorer than other forms.
  • There is less or nil economic growth with gold investments ( A chunk of gold you purchase will remain the same for many years)
  •  Unlike other forms of investment like stocks or bonds, one cannot expect significant returns with gold

However, gold in the form of jewels remains a favorite form of investment especially in households where there are women, irrespective of today’s gold rate.

Gold Investment - Myths Vs Facts

Is gold worth your money considering today’s gold rate and the steep hike in prices very frequently? Getting good returns out of gold investment entirely depends on your investment strategy and the forms of gold you choose to invest in.

There are several myths around gold investments in India. People have extreme views on investing in gold. A few of the myths surrounding gold investment are decoded below.

Myth #1: Gold Is a Loss-Making Investment

The gold rate in India fluctuates based on various market attributes. Most people are of an opinion that with gold investment, you would end up making losses. This is because you purchase a commodity at a high-price, with no guarantee on inflation of the prices.

Fact:

Every asset class performs in a different manner and it varies from cycle to cycle. At times, the asset remains flat, sometimes there is high volatility in its performance. Then there is the growth phase. The best bet would be to make purchases when the prices of the asset are crashing.

It may take a while to recover, but it eventually will. Sometimes, the profits are huge and at other times the investor can make profits by a small margin based on the gold rate in India. Investing in gold will not lead to a loss if there is a good strategy. Turn to experts for advice on investing.

Myth #2: Gold Does Not Provide a Sound Inflation

The general opinion of the public is that gold does not offer a reliable inflation hedge. Inflation hedge is when a commodity loses value when the prices rise. The misconception is that gold loses all its value with price rise. On an average, the inflation rate in India is from 5.5% to 6.5%.

Fact:

When today’s gold rate is compared to the gold rate a decade ago, you can observe that there has been a steady increase in the gold rate in India. Gold has always maintained purchasing power. This power will be maintained as long as the central banks all over the world keep increasing their money supply. Due to this gold has maintained a purchasing power during times of inflation as well as deflation.

Myth #3: Only the Wealthy Can Afford Gold Investments

Those who are new to investments presume that gold investments are only for the wealthy. This is because of the purchase cost of gold that is steadily on the rise.

Fact:

Irrespective of the rise in today’s gold rate in India, this metal is not just for the wealthy. There are several methods in which one can invest in gold. Gold can be brought in small increments and there is no necessity to buy huge gold bars or billions in large stacks.

Myth #4: Gold is a High-Risk Investment

For investors, the risk is a scenario in which the capital is lost or their asset underperforms or when their expectations with returns or today’s gold rate are not met. Amateur investors feel that they may lose their capital investment while investing in gold. But the reality is far from it.

Fact:

In any asset class or investment, there are several types of risk that include inflation risk, market risk, currency risk, liquidity risk, and risk with interest rate. While all of these are applicable to many asset classes, they do not apply to gold investments. Most of these risk factors do not apply to today’s gold rate and they do not control the gold rate in India.

In some rare scenarios, when a currency gets strong, gold may experience some kinds of currency risk or market risk up to an extent, but they are just for the short-term. Even in such cases, gold bullion will never hit the zero mark, unlike other asset classes.

Gold as an asset is considered to be volatile, but the compounded interest when calculated annually is high.

Conclusion

Irrespective of today’s gold rate in India, gold investment will always give you good returns when you choose the right mode of investments.

You can consider gold investment in bullion, like bars, investment in gold mine stocks, or gold bonds. These forms of gold investment have limited risks and based on the market value will provide returns as per the today gold rate in India.

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