Gold has always been a perfect hedge against major events affecting capital markets, currencies, economies globally. Be it the financial crisis of 1970, 2000, 2008 and now 2020 COVID19 crisis, gold has demonstrated solidity. It helps to preserve the value during crisis and this quality validates the stability of gold and its attractiveness over time.
With impending global recession, stimulus packages being generously doled out, uncertainties on oil and other asset classes looming; gold can be a part of portfolio fractionally, around 10%.
Please remember that gold prices move up and then can languish for a long period of time. One should bear in mind that gold does not produce interest or dividend and gold prices fluctuate basis the demand and supply pressure globally, however it acts as an effective hedge during crisis.
Financialisation of gold helps us to look at following options:
- ‘Digital Gold’ allows you to purchase gold coins, bars and jewellery online. Patym Mobile Wallet, Gold Rush by the Stock Holding Corporation of India and Me-Gold of Motilal can also be looked at.
- Another option is to buy Gold ETF or Sovereign Gold Bonds (SGB). This can be bought over an exchange (BSE/NSE) with gold as the underlying asset. There is a transparency in prices as it tracks gold prices, and no concerns with regards to theft or storage make them interesting options. The expense ratio and broker cost must be accounted for before buying ETF. Gold ETFs attract a capital gains tax of 20 per cent with indexation if sold after 36 months, however long-term capital gains tax in SGB on redemption are tax-exempt.
