Why you should not buy gold?

Why you should not buy gold?

Prime Minister Narendra Modi and RBI Governor Raghuram Rajan urged banks to convince people to channelize their savings to other financial instruments apart from gold. This will not only help India to grow economically but will also bring a great social transformation. Even Finance Minister Arun jaitley wants Indian banks to make cashless transactions as it will help in gaining currency value. The challenge will be faced by the commercial banks when it will come to convincing people that a bank is as safe and reliable as they think gold is. This will also improve the productivity.

Why do people buy gold?

In modern economic era where paper currency is the money in demand, gold's only usage is in making jewelry. On the contrary, gold is an asset and has inherent qualities that make it unique and precious for investors to have it in their treasury. It also serves as the investors' insurance against geopolitical events, uncertainty and inflation as it is a much better option in terms of liquidity

For this reason, investors typically look at gold as a safe haven during the times of political and economic uncertainty. Reviewing historical wars and political we have seen the downfall in currencies. At that time investors who had gold were able to protect their wealth. Accordingly, whenever there are updates on any type of uncertainty, investors often buy gold as a safe option.

The reason for the importance of gold in the modern economy centers is the fact that it has successfully preserved wealth for thousands of generations. The same, however, cannot be said about paper currencies.

Why should you not buy gold?

Gold is the only commodity that tends to go down when everything is up and vice-versa. The market is expected to move in the downward direction as heavy investors are expected to sell gold rather than buying it.

Earlier, gold did much better than equities but not anymore. Both equities and gold involve risks and you cannot rely on gold.

Even in the US, with the increased interest rates, investors keep their money in dollars rather than gold. At the same time the price of gold is dependent on the international macroeconomic factors. You cannot invest in gold confidently for a short and medium term.

You can only buy it for two reasons- need for gold and need for a security instrument in your portfolio. Gold is just a precious metal that involves additional costs and risk involved is comparatively more than cash investment. It is moreover considered as a pledged asset as it is equivalent to savings or wealth stores but not an investment.

Now that other investments look more appealing than gold, a time will come when gold will be considered less valuable. In India, e-gold is offered by the National Spot Exchange Limited (NSEL) which gives investors the option to invest in commodities such as gold, silver and platinum online. The real risk in buying gold is that we lose the opportunity of investing in other commodities which can actually give higher returns.

Investing in Gold Exchange Transfer Funds (ETFs) and mutual funds is safer and more convenient than buying pure gold and jewelery. Gold funds are a much better option than physical gold as they have significant advantages over the latter if you are looking at it as an asset class.

If you keep gold in its physical form, there is only outflow of current income for the maintenance of lockers. Jewelry is not an investment as it is only an expenditure for pleasure, symbolizing wealth.

Gold is considered to be a good option in terms of liquidity but families in India even have sentiments attached to it and it is the last item to leave the house in case of financial difficulties. So it has no use even being a liquid asset.

Moreover, it does not have any tax benefits. The price of gold even goes down if a natural calamity strikes the country.