Are Gold Investments Profitable?

Indians have an obsession with gold as an asset. People love to stock gold ornaments as an investment. However, in a world driven by equity investments and mutual funds, a majority of investors have this question: Are gold investments really worth it? We will try to answer them here.

Gold ornaments are passed on from one generation to the next generation and gifted to new brides as it is considered to bring a good stroke of luck. It is an asset class that comes to your rescue when everything else is going against you.

A reason that makes gold investment lucrative is that it’s a great hedge against inflation. This is a time-tested theory that tells us that gold prices remain unaffected even in periods of high inflation. Also, if the currency depreciates, then gold investments make more sense.

The issue with investing in physical gold is liquidity; it is highly illiquid as it blocks the capital of the investor even when he wants to sell his holdings. Physical gold is also not profitable since it involves making charges, then there are issues of its purity, and safety from theft is always a concern. During the selling, you have to ask for quotes from several buyers, and a lot of negotiation takes place. Also, the buyer will not consider the making charges you paid while making jewelry out of gold. Thus, the returns on physical gold are never high after taking all the factors into consideration.

However, gold investments today are much more than 24-carat physical gold jewelry. With the rapid growth in financial markets, gold investments have diversified. You now invest in gold via buying gold ETFs (Exchange Traded Funds), Sovereign Gold Bonds (SGBs), Gold Mutual Funds, e‐Gold, Gold Futures, etc.

The bottom line is, gold investments are profitable if you hold gold as a financial asset (Gold Mutual Funds, SGBs, Gold ETFs, etc.) instead of physical gold.

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