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Get the glitter – How to buy gold

This article talks about various options available to buy gold, and discusses their advantages and disadvantages.

We know that Gold is a very important part of any portfolio. It gives stability to the portfolio value during volatile times, because the price movement of Gold is usually opposite of the price movements of other popular asset classes. (Please read “Have you invested in jewellery?” for more details)

Most Indians buy Gold in the form of jewellery. If bought for ornamental value, it makes perfect sense. But buying gold in the form of jewellery is the worst possible way to invest in gold! (Again, please refer to “Have you invested in jewellery?” for more details)

Here, let’s discuss the other options for investing in Gold, and discuss their pros and cons.

 

Option 1: Buying Gold coins from Banks

Banks in India have started selling Gold in many branches. In fact, they are pushing this very heavily!

Advantages

  1. Banks source their gold from the most authentic sources. You can trust the purity, and the weight.
  2. Banks also give a certificate of purity with the gold coins they sell.

Disadvantages

  1. The price banks charge for gold is usually 10-15% higher than the market rate. That’s way too high! This increase in the cost of acquisition means reduced profit when you sell it!
  2. Banks do not repurchase gold from you. So, when you want to sell, you would have to go to the market, and you would only get the prevailing market rate.

My Opinion

Buy gold from banks only if you are extremely risk averse. You pay too high a price for getting certified gold.

 

Option 2: Buying Gold coins / bars from Jewellers

Advantages

  1. You get gold at market rate! You don’t have to pay any markup on the prevailing market price.
  2. Jewellers usually buy back gold coins or bars that they have sold in the past – and again at the prevailing market price

Disadvantage

  1. There is no guarantee about the quality of gold. The quality totally depends on the reputation of the seller.

My Opinion

Although buying gold from jewelers is better than buying gold from banks, you need to be really careful while doing this. Before finalizing the jeweler to buy gold from, do some research and find out his reputation. And buy only from a jeweler who is known for selling quality gold.

 

Option 3: Gold Exchange Traded Fund (ETF)

Buying gold from banks or from jewelers has its own advantages and disadvantages. But one common disadvantage for both is that you would need to buy and store physical gold. You need safekeeping for it for as long as you own it!

And that’s where Gold Exchange Traded Funds (ETFs) come in. In my opinion, a Gold ETF is the best way to invest in Gold – just buy gold in demat form, and you can sleep peacefully at night!!

The advantages of Gold ETFs are manifold, and therefore, Golf ETFs warrant a whole article! Go ahead and read “After e-Stocks, now its time for e-Gold – Gold ETFs” to know all the details about Gold ETFs.

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