How to Start Investing in Gold

Even though giving gold to your girl child on her wedding has taken a different meaning altogether in current time, in the past, people gifted gold to their daughters to safeguard them against various financial crises. Gold has been one of the best investment methods for thousands of years, and hence, even today, people trust this yellow metal for saving them from different difficult phases of life. One obvious reason for investing in gold is the high rates of the gold in every era. Currently, the gold rate in Kerala is Rs.23, 984 for every 8 gms of 24K gold.  

Why Invest in Gold?

Since gold is a universally accepted currency and most of the central banks hold it, it is always safe to put your hard earned money in it.

Just like a family home, which most of the times is not an investment but is handed over from one generation to other, gold is also a possession and preservation. Gold is one of those assets that can help you in your rainy days.  

However, with time, the methods of investing in Gold have changed. Today, we are going to discuss some of the top ways to put your money in this precious metal so that you can get the best returns:

  1. Gold Bullions, Coins, and Bars: These are the forms of physical gold. It is seen that bullions and coins consist of approximately one-quarter of the total demand for And, this demand for coins and bars has quadrupled since the year 2000. Additionally, it is not only India or other Asian countries that prefer to invest in gold- the trend is likewise even in the Western parts of the world.
    Since the bars, bullions and coins of gold are the purest forms of the metal, their price is solely determined by the rate of 24K gold, which varies according to the area. Gold coins are minted in almost all the countries of the world, including US, UK, Australia, China, South Africa, India, etc. Usually, the sizes in which gold coins are available in India are 2, 4, 5, 8, 10, 20, and 50 grams. Since they are of the purest form of gold, it is suggested to keep them in your bank locker or some safe place. Therefore, protection of the physical gold is one of the challenges that an investor faces.  
  2. Paper Gold or Gold Mutual Funds: Yes, you read it right, the modern form of investing in gold is mutual funds or paper gold. In this form of gold investment, you put your money either in gold mining companies or in the companies that are exploring gold deposits. However, there are some companies that are both explorers and miners. Any change in the price of the gold does not affect the gold mutual funds. But, mutual funds of gold are affected by the fluctuations in the stock market. This form of gold investment is safer than physical gold as there aren’t any chances of theft or burglary of the mutual funds. However, gold mutual funds require a lot of paperwork and there is a charge involved in managing the fund(s). Additionally, there are charges for entry and exit. These additional costs, in turn, make the overall return on gold mutual funds smaller than expected according to the improvements in gold rates in all those years. However, gold mutual funds are best-suited for the investors who want to invest through a systematic investment plan and have an understanding of the stock market.
  3. Gold Exchange Traded Funds (ETFs): It is not actually a direct investment in gold, but is somewhat similar to that. Herein, an investor buys a proportionate ownership of the collective vault instead of purchasing physical gold. The value of the ETFs is directly proportional to the gold price.
    You need to have a Demat account for this type of gold investment. Additionally, you can purchase or sell your gold ETFs only through the stock exchange. However, it is not affected by the fluctuations of the stock exchange. It is not recommended to invest in gold ETFs if you do not have any taste for trading intra.
  4. E-Gold or Digital Gold Currency: Like e-wallet or e-banking, e-gold is also becoming popular day-by-day. It allows an investor to invest in much lower denominations of the gold such as 1gm, 2gm, etc. Moreover, it is much more easy to purchase and sell e-gold than physical gold. Just like we all buy and sell physical gold from the banks and shops, we can purchase e-gold over the internet through the exchange. Apart from this, we can convert electronic-gold to physical gold anytime. In this way, e-gold has more utility than its physical form as there is no risk of losing it.
  5. Allocate Gold Accounts: Just like currency accounts, many gold dealers and bullion banks offer gold accounts to their customers. Whenever a customer holding a gold account orders gold, the bank or the dealer purchases the gold on his/her behalf. This gold purchase is booked electronically into this account. In this way, the allocated accounts hold the purchased gold and hence are the owners of that gold. Two major and reputed gold accounts providers are Gold Money and Bullion Vault. A gold account holder can easily buy and sell gold from his/her gold account. It is one of the safest ways to own a bullion as each and every bar of gold is checked, audited and kept safely.
  6. Gold Certificates: The only government program that offers gold certificate is the Perth Mint Certificate Program. This program enables one to purchase and own gold that is stored in the vaults of the Perth Mint of Western Australia. Your purchased gold is safely stored in the mint of the government and it is insured by the Lloyds of London. In this way, an investor who has purchased gold from the Perth Mint does not own gold actually or physically. However, what he/she does own is a promise from the Perth Mint to provide his/her gold whenever needed. Therefore, after investing in the gold certificate, one becomes the owner of the purchased gold but the aforesaid gold is in the custody of the account provider.
    This mode of investment in gold is one of the cost-effective ways for the investors to invest in gold bullions for a longer period of time. The reasons for the same are many, some of which are: there is no ongoing or initial cost, no shipping charges nor any fees for custody are attached.
    These accounts are also known as ‘unallocated accounts’ as one does not hold any actual gold instead is owed a promise. It is seen that majority of gold investors prefer these unallocated accounts because there are no holding fees for these accounts. Moreover, these accounts provide complete flexibility to their owners to transfer the purchased gold to their allocated accounts. However, for transferring gold investments from an unallocated account to an allocated account, one needs to pay minimal fabrication fees.
  7. Numismatic Gold Coin and Semi-numismatic Gold Coins: Numismatic gold coins are rare and old coins. People buy these coins not only for their pure gold content, but for their historical significance, rarity and their artistic appeal. The price of these coins, most of the times, increase at a much faster rate than the price of gold in the stock exchange. Moreover, the price even decreases comparatively faster when the gold rate is low in the bull market.
    On the other hand, semi-numismatic gold coins are the sovereign of the British gold. The coins of one pound are majorly owned and traded in the semi-numismatic coins category.
  8. Purchase the Derivatives of the Gold: Forwards, Futures, and Options: One needs to have a good understanding of financial securities than other types of gold investments to invest in this section. And thus, this form of gold investment may not be suitable for all the gold investors. Generally, gold futures denote a deal, wherein an investor agrees to get the delivery of the gold on the mentioned date by making some initial payment. However, the rest of the payment has to be made according to the agreement. Since this is a trade of speculation, thus it involves a high risk. Moreover, the investor has to settle the contract even if he/she encounters loss in the investment.

These are top 8 methods of investing in gold. We have mentioned both pros and cons of each method so that you can invest after completely understanding every possible way of investing in gold. So, what are you waiting for? Start investing in gold as per your liking and experience, as gold still is the best way to safeguard yourself from future financial crises. The gold rate in Kerala is still not very high, hence you can purchase it easily there.