Last Updated : 05 January 2013 at 11:00 IST
Why you should cut down your physical gold buying
Source :Commodity Online
Author :Binu Alex
Gold is both loved and hated. Loved by those who are in their fantasy world as well as those who believe it is an instrument for the future and at the same time hated by those who see it as an evil for all their social problems mainly marital issues.
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The temptation is unassailable but affordable only to those who have disposable income. Eventually this temptation is forcing even those under poverty line to forcibly buy this material. In turn the greed and the need of this material is creating not only a big divide socially but also putting the government into a big dilemma.
Your guess is as good as mine if not better. Yes, I am talking about a yellow metal called Gold. It is both loved and hated. Loved by those who are in their fantasy world as well as those who believe it is an instrument for the future and at the same time hated by those who see it as an evil for all their social problems mainly marital issues.
Do you know the metal you have been accumulating all along has been an unparalleled medium that has caused unbearable suffering, reasons for many war and been associated with so many curses?
Yes, tt has been the sole reason for the collapse of so many empires, break up of so many love stories. Even today, so many murders are still happening across the globe just for this yellow metal. For centuries, Gold has been the centre of attraction with artifacts of Gold believed to possess supernatural powers. Even the sea piracy began with the loot of sea farers for gold.
Though there is no proper inventory on the total mining of gold, what is publicly available are around 30,000 metric tonnes with single largest gold deposit facility at the Federal Reserve of New York around 5,000 metric tonnes gold reserves. There are unaccounted quantity of other reserves. It is widely believed that more than 84 per cent of all gold mined are still in bar ingot form. There is also a section of people who believe the prices of Gold are artificially manipulated – like that of Diamond- by vested interests.
Excessive hoarding of Gold has historically led to deflation and it has time again proved to be correct. One of the biggest contributors to the Gold story is Asia. Its appetite for Gold and other forms of precious metal have been legendary. It is believed that in the ancient times Indian ports used to receive at least one ship per day from Europe and American areas laden with precious metals. These ships would then take back spices. In early nineteenth century, the biggest Gold hoarders were from these regions to what we call now as European Union. France led this hoarding spree. These metals would have then got bartered for spices, a reason why we call Pepper, black gold.
Asian countries, especially India, are worried over their heavy import bills on Gold – something they believe is avoidable. Instead the Indian Banking regulator, RBI has been insisting that India need to "dematerialize" gold like any other financial product to reduce its physical imports.
But in a country where gold is not an investment but rather a culture, will this happen? Yes, if the distributors and broking firms and the government takes efforts to promote it.
Paper gold is a form that is the most flexible investment ever built and completely endorsed by government of India. It offers to hold Gold either in physical or demand form and is completely liquid. You don’t need to check for purity, weight, quality and a transparent pricing on your screen ensures you get the right price too.
You also have the option to have gold exchange-traded funds (ETFs) which is just like a mutual fund but fluctuates as per the gold price rates. The NAV is displayed periodically for gold ETF just like mutual funds. The gold that is shown in the respective ETF has a quality of 99.9%. But it has a catch which is the additional charges it levies in the form of AMC, vault, insurance etc which goes upto 4 percent. While in E-Gold, it is one tenth of that cost.
The only charge a client needs to pay while buying a paper form of gold is a transaction fee which varies from broker to broker but could be in the range of 50 paise to 70 paise per gram. As far as taxes are concerned, investments upto Rs 15 lakhs during one financial year is exempted in wealth tax and this includes investment in Gold, anything above this will attract one percent of the value. As far as short term capital gains are concerned you need to pay only if you have transacted a buy and sell within 36 months. Otherwise, long term capital gains will apply.
So should you opt for a physical form of Gold jewellery which loses much of its value in terms of the money invested in it since a lot of charges are deducted once you want to encash it or gold bars/biscuits which doesn’t attract deductions but is unsafe to guard. Or would you like to have a paper gold which is not only safe, but liquid and can take physical delivery any time you want to?
Better to keep the curse away in physical form and let the progress come in through paper form.
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