Gold is considered by many, to be the best investment you can make to protect yourself during stock market declines and inflation. In fact, history shows that the performance of gold goes up in times of high inflation.
However, the price of gold also has its highs and lows and you could just as easily lose money investing in gold as with any other investment. Factors need to be considering while investing in gold: (i) Forms of buying gold: any investor has to be aware of the different gold.
Jewellery, the most traditional and the dominant form of forms of buying buying gold in India and Bank coins, bullion bars, gold exchange trades etc are other forms of investment. (ii) Current income: Gold in any form does not give any current income. The only exception is the dividend option in the gold ETFs. If held in the physical form, there is only outflow of cash for the maintenance of lockers. (iii) Capital appreciation: gold is a very strong bet compared to shares that are highly volatile. The idea for gold investment will be to use it at times when the markets are falling and when the inflation is very high. (iv)
Risk: Gold does not carry much risk at least in India, as we hardly see deflation in the real sense. 56 Electronic copy available at: https://ssrn.com/abstract=3525301 June 2013, Volume No: 2 Issue: 4 (v) Liquidity: Gold scores the highest in terms of liquidity, compared to all other investments.
At any time of the day and any day gold can literally be converted to cash. Banks would give you a jewellery loan (remember though that many banks do not give loans on coins, including their own), and so would your friendly neighborhood pawn shop. (vi) Tax treatment: Gold suffers capital gains tax as per the IT Act. So it is better to ask your jeweler for the bill. Gold does not have any other tax benefits. (vii) Convenience: Gold scores very high here. But with the per gram price rising, the smallest single investment is becoming higher.
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