Here's why buying gold this Dhanteras is a bad idea

Diwali is just three days away. Correction, it is two days away, because Choti Diwali is Diwali too. And then there's Dhanteras. I am sure the women in your families, and even you are excited about buying something in gold. Maybe that pendent you have been saving up for? Or a pair of earrings? And Dhanteras mein toh banta bhi hai. It's a tyohaar yarr!

 

But what if I tell you, don't buy gold jewellery this year. "Kya? kya? kya?" is probably the reaction in your head. Calm your horses. I will give you the reasons.

Sona kitna sona hai, sone jaise tera man

Gold and women in India share a relationship that cannot be explained in very simple terms. Gold is associated with traditions, emotions and even pride. Women use gold instead of cash or other investment plans. In fact a lot of people won't even trust their gold to bank lockers, preferring to keep them in their houses. There is an actual risk of attracting burglaries in that case.

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The tendency of women to rely on cash savings at home made them the worst affected victims of the demonetization drive of 2016. And the only antidote they take up to this lack of any investment is the buying of gold jewelry. But before you start rejoicing that buying gold is actually investing, understand that gold, particularly gold jewellery, might very well be a dead investment.

But yeh investment kya hota hai?

 

An investment is any item purchased with the idea that it will generate income in the future. In an economic sense, it is the purchase of goods that are not consumed immediately but are used in the future to create wealth, even if it is by selling it off at a higher price. But we do not usually sell gold, unless, as many Bollywood films have rightly depicted, someone is dying or is in a really bad financial situation. Gold is associated with pride. But in economy, that does not hold a place.

As I have explained in the previous paragraph, investment is that which give returns in future. But if it is never used, especially gold jewellery, becomes a dead investment. Gold can be a good investment class only if it gives you returns on your investment that you can actually use.

Sona toh hai sada ke liye

One might argue that gold is not sold because it is seen a long term investment. Fair point. Even property is a long term investment. But it is different because it usually has the potential of rental income, or money collected through rent. But gold has to be sold to get anything in return and this is where Indian women lose out in particular - the sentiment attached to gold. We might pawn our jewellery - give it as a guarantee to assure we return money taken against it - but we won't sell gold. This is why India is home to the largest bullion market in the world. But I will come to that later.

Gold will be used to make jewellery later

 

Gold is actually not an asset per-se is that even in the form of gold bars or coins, if you think isse jewellery banwa lenge baad mein. 100- gram of gold cannot be completely turned into 100 gram of gold ornament in the future. Things like cutting, melting, fixing designs will reduce the quantity and reduce its purity. Of course the difference in time will make the pre-owned gold cheaper, but that is not technically an investment still.

But ads told me, there are always gold loans

There is the option of taking loan against gold. But loan itself means paying interest rather than generating returns. In order for taking that loan, you have to first get the gold jewelry stored in lockers at home or in banks, investment is mandatory and give it to banks or bullion markets.

Yeh bullion bullion kya hai?

Bullion is gold and silver that is officially recognized as being at least 99.5% pure and is in the form of bars, coins, jewellery or utensils. Bullion that contains more than one type of metal is called 'unparted bullion.' Bullion Market is a forum through which buyers and sellers trade pure gold and silver. The bullion market is primarily an over-the-counter market where gold is sold and bought. It has a high turnover rate. The bullion market is just one of several ways to invest in gold and silver. There are options like exchange-traded funds and gold funds.

1. Exchange Traded Funds

You go to a bank and you tell them that you want to trade or invest in gold. You want to avail the benefits of rising prices of gold. They will first open a Demat account in your name. They will then make you talk to a broker or they will give you a toll free number for information. You can also trade in gold online, if you do not feel like getting to the bank. You can buy gold and keep it in your Demat account. It won't be actual physical gold. If you bought gold at 11 am today and want to sell it by 4 pm the same day, because of an increase in the price of gold, you can do that. You can buy and sell gold at anytime and any day, even if you don't have actual gold in possession. You will enjoy the benefits of gold trading all the same.

 

2. Gold Funds

In gold funds, unlike ETFs there is a particular, pre-decided time for buying gold. E.g you can decide that you will buy gold worth five thousand on the first of every month for 5 years. On the first of every month, depending on the current market value of gold, you can buy the amount of gold that can be bought with five thousand.The gold accumulated this way can be sold off at a later date. In five years, there would an increase in the price of gold the benefit of which you will get.

So how about not buying gold this Dhanteras and gifting yourself investment instead?