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Smartest Way to Invest in Gold

by Chirag Sharma
Smartest Way to Invest in Gold

What impacted the global bullion business in 2020? Covid-19 pandemic. How?

Airlines stopped operating, therefore there was no reasonable options on transporting physical gold to demand markets. This led to a severe distortion in pricing where instead of globalization, the business was focused on localization. Huge discounts, but not enough local demand to absorb the pent up volumes. The big boys found a way through private charters, however the quantities needed to be extremely high to get price efficiencies.

On the retail front, and due to lack of confidence in their country's economy, investors and the general public wanted to diversify their assets into physical gold holdings. How did this stack up? Long queues at stores and then total lockdown happended. Some were lucky to get some gold and those who wanted to avoid the long waiting time had no other avenues to procure the yellow metal.

Covid-19 taught the whole world a lesson!

Historically (i.e. meaning also currently), we resort to the following areas for investing in gold:

 

  • Physical gold in the form of jewellery, small bars and coins
    • In addition to the gold price, an additional making charge is applicable which is a sunk cost i.e. irrecoverable at the time of when you want to sell
  • Gold Saving schemes
    • A standing monthly instruction to invest a fixed sum of money per month on physical gold for a chosen tenure. At the end of the tenure, to redeem the physical gold or the value that is equivalent to the gold holding
    • This can be done in two options i.e. through your jeweller or the more savvy 'Systematic Investment Plans' electronically
  • Paper Gold
    • Exchange traded funds wherein there is a notional investment based on the price of gold, but no physical underlying. There is an option for redeeming the shares for physical gold, however the barriers for doing so makes it highly complicated and inefficient for the costs incurred
  • Sovereign Gold Bonds
    • Government sovereign bonds are not available 'on-the-tap' basis but rather they have specific limited window of opportunity i.e. sometimes 1-2 weeks at a time and then we don't know when the next batch will be issued for investment. The only way to exit the investment is through the secondary market which is unreliable in terms of liquidity and pricing.

What went wrong for investors during Covid-19?

  • Limited access to physical gold through retailers and lack of physical availability. No other options to own physical gold.
  • Gold saving schemes work for long-term investments, not the immediate short term and the physical is only available at maturity
  • Paper gold is not an investment in physical gold, it is used for speculative purposes
  • Sovereign gold bonds work well in a stable economy. If the economy was so stable, why was there a need to convert current assets into physical gold?

The SMARTEST way to invest is through a trusted 'Digitalised Physical Gold Platform'

Digitized gold is one of the smartest, most efficient, and logical ways for investors to own gold, whether it be through digital tokens, fractional gold, or digital ownership of physical gold. By digitizing gold, investors determine where, when, and how they would like to obtain, settle, and trade their assets - flexibility that was unavailable to the investor in the past.

At its core, digitized gold is a means of ownership that allows investors to purchase physical gold held at a designated location in a digital manner; investors then prove ownership of their gold through digital records.

Through those digital records of ownership, which in many cases take form as clear records of title on a blockchain, investors purchase gold that is stored in secure - and in certain instances sovereign - vaults.

Traditionally, investors had to make the decision to store gold in their home, and become responsible for the custody of their metal. With digitized gold, investors now have the ability to establish a clear title of ownership over physical gold without the need to take physical possession of the metal. Therefore, while investors still technically maintain ownership of their investment, they are not responsible for the storage, security, insurance, or transportation of that gold.

Let us know if you would like to explore investing digitally in physical gold. It definitely is the way forward and is likely to trend into the foreseeable future.
 

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