The gold rush

Jewellery that your mom passed on to you from her mom or a gold bangle you picked up on a whim. If there’s one thing you can count on, it’s your gold. It can even make extra money for you, just sitting at the bank.

Gold prices are expected to go up to Rs 40,000 or more per 10 gms by the end of this year – which means that the returns on gold investment went up between 27 to 30 per cent in the span of just a year.

Don’t panic if you haven’t invested. You too can get a piece of the Indian gold rush. Each time the price dips is an opportunity. Even if you go out and buy today, you are guaranteed an eight per cent return by the end of the year if gold moves to Rs 41,000 per 10 gms. And it will. Gold prices almost always have room to move up, even if in the international market its price is still USD 400 below the record prices of 2012.

“An unrelenting trade war which is now a currency war, loose monetary policies across key economies, recessionary trends and lower global growth rate — all contribute to gold’s bull-run,” says Himanshu Gupta, VP and Head of commodities and currencies research, Globe Capital.

Invest in coins/ bars, not jewellery
There are several instruments of gold available in the market — in physical, paper and digital form. Most common is jewellery, coins and bars. However, it costs to make jewellery and there is wastage, so you lose from three to 25 per cent, depending upon the intricacy of the design. Jewellery is thus more ideal for personal use, and not for investors.

As for coins and bars, some jewellers deduct a nominal fee when buying back; in general, they buy lower and sell higher, at a rate of two to three per cent more. Paper gold includes instruments like gold exchange traded funds, gold fund of funds, gold mutual funds and sovereign gold bonds.

You have to pay a one per cent charge for the management of Gold ETFs and gold mutual funds. Gold funds have a slightly higher cost but have a systematic saving option and are open to those who do not have a demat account. For the highest returns, sovereign gold bonds are the best. They give you an additional interest of 2.5 per cent over and above the returns on the investment. The interest is taxed but not the capital gains.

Different options
One must be patient. It’s advisable for an investor who wants to hold the bonds for a long term as there are liquidity issues and finding a buyer will be difficult if the investor wants to exit the bond in between, warns Anil Rego, CEO, Right Horizons.

Jewellers also offer gold savings schemes where buyers deposit an amount for 11 months and the jeweller pays the 12th installment. However, this money is usually redeemed as jewellery and is not attractive to an investor.

Several companies now offer the facility to make systematic investments digitally in gold. They store the corresponding amount of gold in vaults operated by the minerals and metals trading corporation (MMTC-PAMP) or by banks. The customer pays for making and delivery when digital gold is converted into gold coins. “It is important to verify the company’s credentials before investing,” cautions Rego.

Monetisation scheme
Those who would like to monetise their gold assets can, under the Gold Monetisation Scheme, deposit idle gold with designated banks and earn an interest of 2.25 per cent to 2.5 per cent. On completion of the tenure the gold can be redeemed in the form of coins, bars or cash while the earnings — the appreciated gold value and the interest — are exempted from capital gains tax, wealth tax, and income tax. Now we can all be gold-diggers – and be proud of it.