Although the price of gold may be volatile in the short term, it has always maintained its value over the long term. Over the years, it has served as a hedge against inflation and the erosion of major currencies and is therefore an investment worth considering. Physical gold is an expensive commodity in any form. Storing it requires a safe space, such as a locker at home or in a bank, due to the risk of theft, and that involves a cost.
In addition, every time you need the gold, you'll have to physically go looking for it. It won't “come” to you like other financial products do. The point here is that gold isn't always a good investment. The best time to invest in almost any asset is when there is negative sentiment and the asset is cheap, providing substantial upward potential when it returns to favor, as stated above.
In the past decade, in rupees, with a compound annual growth rate (CAGR) of 5.7 percent, physical gold yielded much lower returns than Nifty's 15.5 percent. It is generally recommended that between 5 and 10% of your portfolio be invested in gold, and it goes without saying that gold should be held in physical form and not as paper gold. Finally, if your primary interest is to use leverage to benefit from rising gold prices, the futures market may be your answer, but keep in mind that any holding based on leverage involves significant risk. Today, these organizations are responsible for retaining nearly one-fifth of the world's supply of gold above ground.
Given the difficulties associated with physical gold as an investment, it's best for an investor to look for other options, such as paper gold. Mrin Agarwal, financial educator and director of Finsafe India, a financial education company, says that buying physical gold “is much more expensive, since it involves a lot of overhead costs, such as manufacturing or waste charges, which usually represent between 25 and 30 percent of the cost. But if we analyze gold in terms of protection against crises (and I am referring to real crises), it must be physically owned, since all other assets could lose their value in a few days. Unlike many financial instruments that offer benefits or dividends, physical gold doesn't offer benefits while it's with you.
While physical gold was formerly considered a great form of investment, this is no longer the case for several reasons. Its value and performance are not correlated with other assets and it tends to maintain its value when inflation increases, making gold particularly attractive in today's environment. You can buy physical gold at government mints, such as the Royal Mint in the United Kingdom, at precious metals dealers and at jewelry stores. Critics cite the lack of income that can be obtained from physical gold or ETFs, since it does not generate dividends, and the price can be volatile in the short or medium term, making it difficult to know whether to buy at the top or bottom of the market.
At the other end of the spectrum are those who claim that gold is an asset with several intrinsic qualities that make it unique and necessary for investors to keep it in their portfolios. Analysts prefer physically backed ETFs or ETFs, such as iShares Physical Gold, rather than leveraged products that rely on derivatives to boost profitability, adding additional costs and complexity. A relatively small increase in the price of gold can generate significant gains in the best gold stocks, and owners of gold stocks tend to earn a much higher return on investment (ROI) than owners of physical gold.