In the month of August, gold breached the $1500 per ounce ceiling in the first time in over six years. With the breach of this critical psychological barrier, the sky seems to be the limit for the precious metal. Amid the rising clamour of an economic slowdown and fear of global recession, the yellow metal is trending once again as a safe haven for investors.
With political and economic instability in developed countries and higher market Central banks easing monetary policy globally and escalating trade wars are further fuelling the rally in gold. Those who had the forward vision to hold gold at the beginning of the year, are looking at a 20% rise in the value of gold now.
Why investing in gold makes sense now
Veteran investor Mark Mobius recently reposed his faith in the yellow metal as well and expressed long term optimism about the prospects of gold. Apart from central banks lowering rates, he is sceptical about the rise of crypto-currencies as well. Mobius believes that as new age cyber currencies trend on the one hand there is a rising demand for “real, hard assets” such as gold. There are many an experienced investor who believe in Mobius’s theory. They therefore believe adding gold to an emerging market portfolio for higher risk adjusted returns over a period of time.
As a consumer good and long term savings vehicle, gold is co-related to economic growth, just as the demand is historically driven in periods of heightened risks. Gold has performed well with returns in tandem with S&P 500 over multiple time periods. It not only works as an effective edge against market risks, it may well be considered as a diversification tool regardless of market environment or economic conditions.
The many forms of gold investment
Emerging markets have an affinity for gold and drive two thirds of the global demand in gold. According to the World Gold Council, India along with drive 50% of the demand in gold in the form of jewellery where gold has a sentimental value. But the new age investor in India is keen to explore opportunities in gold as an investment avenue. Thus there is growing interest in gold funds in India. Gold funds are divided into three broad categories:
- Gold ETFs-ETFs are ideal for investors who do not wish to hold gold in the physical form and want to partake in the rally. The underlying asset in these funds is physical gold, and thus the value of ETFs is directly co-related to the price of gold.
- Gold mining funds-These funds make an investment in companies that are involved in mining of the precious metal.
- Gold fund of funds-These funds make investments in units of Gold ETFs.
Gold as an investment in the above mentioned format offers many benefits of participating in the rally of gold. The biggest advantage is that an investor need not go through the hassle of possessing tangible gold, and yet partake in the rally.
Gold in the digital format
While there is a veritable rise in these new methods of gold investment, it does not imply that the need to possess physical gold as a means of security has not waned among Indians. The young and savvy however are sceptical about issues purity and weight-age of gold in local jewellers. Further the lack of flexibility in owning physical gold has given rise to the trend of owning gold in digital format and converting into physical gold at will.
Innovative digital platforms allow investors to purchase or sell or take delivery of physical gold, according to a ticket size best suited to their needs, round the clock, simply at the tap of a button. Gold, in its physical form is stored in world class vaults that have the approval of both the market regulator Securities Exchange Board of India (SEBI). The gold here is regularly audited for purity and weight.
Hold your gold and convert it too
This provides the assurance that buying gold in its digital format is a convenient and simple method of accumulating gold in accordance with all the laws and regulations pertaining to the purchase of gold. One such digital platform for new-age investors is SafeGold, which differentiates itself from peers by achieving the distinction of being the first digital platform to allow users to seamlessly exchange their 24K gold for jewellery through its partner firms, such as CaratLane and Candere.
With tech focussed organisations such as Safegold that aim at building an ecosystem to connect banks, digital wallets, jewellers and other saving institutions to bring more functionality to gold, soon gold investors will go online to make a purchase in digital gold based on gold prices and convert their digital gold to physical jewellery of their choice when they need to, rather than making a trip to the local jeweller to pick a piece of jewellery they fancy.