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Gold and silver prices rose in intraday trading on Friday on the back of an easing bank crisis and the interest rate hike by the European Central Bank (ECB).
Gold prices reached as high as Rs 58,277 per 10 grams in intraday trade.
The gold futures contract for April 2023 delivery opened higher on the Multi Commodity Exchange (MCX) on Friday. ECB’s rate hike has put pressure on the US dollar, causing the Dollar Index to fall below 104 while gold and silver prices soared.
It doesn’t mean you should go all-out and bet big on gold. If you invest in a lump sum because of the rising gold prices, you run the risk of entering the market at the wrong time.
A prudent approach to long-term portfolio management is to allocate five to 15 per cent of the total assets in gold to your investment portfolio.
If you are keen to invest in gold for the long term without paying taxes on profits, with minimum liquidity, you might consider investing in sovereign gold bonds (SGBs).
Sovereign Gold Bonds
Sovereign gold bonds are issued by the Reserve Bank of India (RBI) in limited tranches annually, representing grams of physical gold. They are sold through banks, post offices, the Stock Holding Corporation of India, and authorised stock exchanges.
You can buy a minimum of one gram in SGB. In addition to the price appreciation in gold, SGBs offer 2.5 per cent interest per year.
Although the SGB scheme has an 8-year tenure, you can redeem or encash it in the fifth year. SGBs are held in a Demat form and are traded on the stock exchanges.
If you want to increase exposure to gold gradually, you may choose gold exchange-traded funds (ETFs) or gold mutual funds.
Gold ETFs
Gold ETFs are exchange-traded funds (ETFs) that track the price of physical gold in the domestic market. These are passive investment instruments that invest in gold bullion.
Each unit represents one gram of physical gold, which is the minimum investment. Investing in gold ETFs requires a Demat (Dematerialised) account. As they are listed on the stock market, gold ETFs have a high level of liquidity and can easily be traded on the stock market.
Gold Mutual Funds
A gold mutual fund invests in gold exchange-traded funds, gold mining companies, etc. Gold mutual funds track the value of units of gold exchange-traded funds, which in turn reflect the value of physical gold.
Gold mutual funds are fund-of-funds that invest in the units of gold ETFs issued by asset management companies (AMCs). A gold fund works like a plain vanilla mutual fund scheme and does not require Demat accounts. If you do not have a demat account, you can consider investing in gold funds. The beauty of the gold fund is that you can invest a small amount on a regular basis through the systematic investment plan (SIP). This will help you ride the gold price volatility over a period.
Digital Gold
Companies offering digital gold in India include MMTC-PAMP, Augmont, and SafeGold. Platforms such as mobile e-wallets, broking firms, and financial institutions also offer it. Digital gold investment is certified pure, safe, and insured, and its return depends on the market price of physical gold.
It is possible to buy digital gold in denominations as low as one rupee and sell it at any time. However, digital gold lacks the oversight of regulators like the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI).
(DS)
