Is Investing in Gold a Good Idea?

Reasons to Invest in Gold
Drawbacks of Gold Investments
Is Investing in Gold a Good Idea?

A substantial number of people are experiencing financial difficulties as a result of job losses and wage reduction during the ongoing pandemic. Many people are seen taking out gold loans or selling gold to meet their immediate financial demands. Although gold is regarded as an inflation hedge and a store of value, it is, nevertheless, a highly volatile asset. So, the question of the hour is whether investing in gold is a good idea or not. Let's find out below.

Reasons to Invest in Gold

Here are some reasons that argue in favour of investing in gold.

Wealth Creation

Indian households have a special place of gold in their legacies, which are passed on from generation to generation. Hence, investing in gold ensures the continuation of family values as well as leads to wealth creation.

Easy Liquidation

Gold can be easily liquidated in terms of emergency as buyers who would be willing to buy gold are always available. However, it must be noted that it is not necessarily a profitable deal, especially when dealing with physical gold. There are high probabilities of getting lower returns on your investments.

Inflation Hedge

An inflation hedge is a financial investment that safeguards the investor from a reduction in money's purchasing power. Inflation rate does not even spare currency rates in the global market, however, it has been seen that inflation has no effects on gold rates. Therefore, there is a highly unlikely possibility of incurring a loss in such times.

Low Risk

It is believed that purchasing gold is far easier than purchasing real estate or any other option. It is risk-free for folks who are just getting started with investments because gold purchases carry very little risk.

Drawbacks of Gold Investments

Like the two sides of a coin, every situation has advantages and disadvantages. Let's discuss some of the drawbacks of gold investments.

Low Returns on Physical Gold

As mentioned above, you might incur poor returns on physical gold because jewelry prices are fixed by the current gold rates and the making charges. However, the prices are determined differently when you sell the gold, the making expenses are not taken into account, and you are paid only for pure gold at the current gold rates. This can prove to be a bad deal.

Safety Issues With Physical Gold

It is believed that storing actual gold has the same security risks as storing any other form of cash in our home because gold is as vulnerable to theft as anything else in our home. Thus, investors must exercise greater caution when investing in gold. Although investing in gold through a gold ETF or fund of funds is a better option, you are still exposed to internet security threats. The difference is that this security danger can affect anyone or even everyone, as well as other investments such as mutual funds.

No Steady Income

People invest to provide a source of income for themselves or their children after they retire. As you invest in gold once and sell it once, there is no continuing profit that comes into your pockets with gold investment. So, while gold is arguably one of the best physical assets, it falls short when it comes to income investing.

Is Investing in Gold a Good Idea?

If you are not investing in gold to build wealth or to leave a legacy for future generations, you can easily overlook actual gold and invest instead in stock or gold ETFs. However, for newcomers to the world of investing, a gold fund would be a simpler and safer bet, allowing the investor to benefit while learning about investments. Hence, it advised to take an informed decision after carefully reading and understanding all the implications and identifying your needs and risk appetite.