Physical storage of gold? gold security


In India, whether it is Diwali or marriage or any festive occasion, Gold has been important part of any festival occasion or functions. For the shrewd investor, apart from being an element of beauty, today gold is treasured more as a commodity and an excellent investment. Gold can be purchased in real form, which has been the most common case in rural areas and majority of urban population. But this form has its own weaknesses. First, storing gold requires cost of safe. Usually investors which prefer gold in this form do not take this cost in consideration. Another way to store gold is at one’s residence which is a very risky measure from security point of view.

Another disadvantage of storing physical gold is that on purchase, buyer has to pay a handsome price for its making, if it is jewelry.

Physical storage of gold gold securityEven if one chose to store gold in real form, it is better to go for gold coins or biscuits.

Finally, this form of gold cannot be said to be fungible i.e. it is not freely accepted by all. Usually, the vendor from whom one has bought gold does not provide full value to the gold of another vendor. This further reduces the value of investment.

But when we invest gold in the form of financial product which is available as a paper or electronic investment. Some benefits include no making charges; no botheration about storing as one gets his investment in gold in demat form, no problem of finding a vendor who can provide the real worth of investment; wholesale rates and much more.

Major futures exchanges

Multi Commodity Exchange of India Ltd (MCX)

National Commodity and Derivatives Exchange Ltd (NCDEX).

GOLD Exchange Traded Funds (ETFs).

Gold ETFs invest in gold and the value of units (Net Asset Value or NAV) mirrors the price movement of Gold. If on any given day, gold price goes up, NAV of Gold ETF moves up that particular day. Each unit of fund is equivalent to one gram of gold. These instruments give investors a relatively cost efficient and secure way to access the gold market. They are listed securities that are backed by allocated gold held in a vault on behalf of investors and are intended to offer investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell that interest through the trading of a security on a regulated stock exchange.

Gold ETFs were launched in India in early 2007. Six fund houses offering gold ETF?s products in India are Benchmark Asset Management Co., Kotak Mahindra Mutual Fund, UTI Asset Management Co., Reliance Capital Asset Management Ltd., Quantum Mutual Fund and SBI Mutual Fund. Religare Mutual Fund has submitted a proposal to the Securities and Exchange Board of India to launch gold ETF.

An investor is always looking for an investment which provides returns matched with risk, diversification and liquidity. Gold, in its security form, provides us with these traits to a large extent. No doubt, gold is one asset class which every investor must consider. However, the time to invest should be checked with the price history. As with shares or any other asset classes, investing at right time is said to be half work done. Investing in gold when prices are at historically high level might not be a good idea. In February this year, we saw gold hitting record highs (above Rs. 15,600). Prices have cooled down but whether they are in an investor’s comfort zone or not is a call that he/she has to take.