Gold Jewellery Is NOT a Sound Investment
"No idea is so outlandish that it should not be considered with a searching but, at the same time, a steady eye." - Sir Winston Churchill, inspirational statesman, writer and orator, who led Britain to victory in the Second World War.
Have you ever heard someone say that they are buying gold jewellery as a safe investment that can be used in a time of need? Indian brides are typically laden with gold at their marriages as parents believe that jewellery is a substantial financial asset for their children’s future needs. Although gold as an asset class has a lot of benefits in any investment portfolio, but investing such a large portion of capital in gold is not prudent. And buying gold jewellery as an investment is definitely not a good idea. Here are some reasons why you should reassess the decision to invest in gold.
According to research, Indian households own over 16,000 tonnes of physical gold worth ₹27.2 lakh crores, or close to twice the total foreign exchange reserves held by RBI.
1. Excessive Costs
Depending on which form of physical gold you buy, you should consider the total costs involved compared to the value of your investment. For instance, in case of jewellery, wastage and making charges eat up anywhere up to 30% of your invested money. This means that gold prices would have to appreciate more than 40% just for your investment to break even. On top of that, the cost at which you can sell gold jewellery back in the market will further reduce your final returns. Even gold coins sell at a hefty premium to the actual price of gold, thereby reducing their profitability.
2. No Capital Appreciation
Historically, gold has provided a good hedge against inflation. But in absolute terms, returns from gold have fared rather poorly compared to equities and real estate, providing only a marginal outperformance to inflation. This means that over the long term, your capital will not grow if invested in gold. In fact, after taking all costs into account, you would end up losing money by holding physical gold assets.
3. No Tax Benefits
There are no tax benefits of holding gold for long periods of time. Unlike other investments like equities where capital gains from long term investments become tax free, there is no such tax advantage for gold assets.
4. Social Stigma against Selling Jewellery
Even if you were to overlook the high costs and poor return on investment provided by gold jewellery, you would still be faced with the strong social stigma attached to selling jewellery to meet financial requirements during a time of need. People usually opt for loans, even at exorbitant interest rates, before selling jewellery.
5. Hurting the Economy
The next time you think about buying gold as an investment, consider the impact that this decision has on the Indian economy. India imports roughly one-fourth of the total gold produced worldwide to meet its domestic demand. The money that could have been used for investing in Indian companies and growing the economy ends up contributing to the huge current account deficit and weakening of the rupee against US dollar. Gold itself has no productive value for the country and only ends up being a major hurdle for its progress.