Chapter: 9 | Dark side of the Moon: Is Gold a good investment?
- Chapter: 1 | Bridge Over Troubled Waters – Basics of Investing
- Chapter: 2 | Sultans of Swing – How to Invest Well
- Chapter: 3 | Born to Run – Asset Allocation
- Chapter: 4 | Winner takes it All – Why pragmatic Financial planning is your Trump card?
- Chapter: 5 | Riders on the Storm – Insurance to cover Vulnerabilities
- Chapter: 6 | Sweet Child of Mine – Safe investments products Part 1
- Chapter: 7 | Another Day in Paradise – Safe investments products Part 2
- Chapter: 8 | Lucy in the sky with diamonds – Equity investing
- Chapter: 9 | Dark side of the Moon: Is Gold a good investment?
- Chapter: 10 | Hotel California – Real estate to avoid
- Chapter: 11 | I want to Break Free – Off-beat financial products in the market
- Chapter: 12 | Money, Money, Money! – What wrong products to avoid?
A sunny day with a sprawling dew-laden morning golf course right in front is a Golfer’s paradise. All the three friends, Col AK Singh (‘AK’), Cmde Rajesh Lal (‘Rajesh’) and Gp Capt Pranav Gupta (‘Pranav’), admired the beauty of the nature before preparing to Tee-off today.
“Doesn’t it look like gold spread all over the whole course,” said Rajesh admiringly referring to the bright sunlight playing on the dew droplets.
“Absolutely right Rajesh, and that’s why coincidentally we are going to talk about Gold as an investment avenue in our portfolios today,” chuckled AK, “And I’m totally convinced that ‘Gold is Forever’ is a good dictum to go by. Imagine buying and keeping those shiny coins and golden bars with you with the large amount of money we will get on retirement a few days later. I’m already mesmerized!”
“Totally agreed AK. It is so alluring to have them. But mind you, now we are talking about Gold as an investment and not as something pretty to possess. Have you ever looked at a performance chart of Gold as an investment? Let me show it to you. I have got it right here with me since I knew that this discussion was going to take place today,” said Pranav fishing out a printed paper from his pocket.
“This is how Gold price of One gram fluctuated in the past 10 years in Rupees. Does it not look like a stock market data chart to you? Imagine someone who bought a lot of Gold in Oct 2012 – his investment was in the RED for the next 7 years!”
“Oh my God! So, nothing is safe in this world. I always thought that Gold was a fill-it-shut-it-forget-it kind of purchase. That’s what majority of us Indians think. Our elders have also always told us so,” Rajesh was aghast and had his next golf shot pulled deeply to the left into woods in despair!
“Dear friends, while we discuss all this, please do not spoil your game on this beautiful Wednesday morning. Control your emotions!”, chuckled Pranav.
“Time to break myths!” was Rajesh’s retort with a faraway look in his eyes, while also thinking how he, with his 24 handicap, would get his ball out of that mess.
“That means we should not buy any Gold with our money. It is crazy. Had you not told me that it is a Gold graph, I would’ve actually thought that it is some share price movement,” quipped AK.
“Don’t feel dejected friends. This is just a reality we have to contend with when we plan deployment of our hard-earned money. And please remember that we are talking about Gold as an investment only, right now. It does not take away the fact that Gold is very closely inter-twined into our customs and traditions, and way of life. We use it for our ornaments, in our Pooja, in marriages and ceremonies, in Ayurvedic medicines and much more. So, the discussion here is merely confined to Gold as an investment with your money and nothing else,” clarified Pranav after hitting a beautiful near-perfect 200 feet fairway drive.
“I’m not going to put even a single rupee of my money in this stupid thing,” blurted out AK emotionally.
“Me too,” agreed Rajesh, though not with much personal conviction.
“I think that would be too harsh a decision on this lovely-looking metal. We should not swing between extremes. It has been seen that Gold almost negates the inflation effects over a long period of time, and hence is popularly known as an inflation-hedge. In fact, financial planners often quote a very apt saying – ‘Gold Zooms when the World is Doomed’ – implying that when things become financially uncertain in major economies of the world, it is Gold which saves the day. So, traditionally, Gold is supposed to move in a direction opposite to the economy,” clarified Pranav.
“Ha ha, caught you wrong there Pranav,” chirped Rajesh, “In March 2020, when the stock markets went down drastically, even Gold price went down badly.”
“Agreed Rajesh, and that is the time lots of Gold theories seemed to have proven wrong. Probably it was the shock of the pandemic and the carnage it had unleashed in our lives which produced that uncharacteristic reaction from even the ‘Gold Bulls’. But after a bit of uncertainty, Gold started moving up with the stock markets till say August 2020 when it started moving down, proving the dictum right since the stock markets still kept moving up. So, you see, finally nobody can predict the price movements of anything, not even Gold”, said Pranav.
“But why did you call my decision harsh when I said that we should not buy Gold since it is such an uncertain investment,” was a genuine doubt from AK.
“Financial advisors will always tell you to have 5-10% of your investments in Gold, just because it is considered an inflation-hedge. And mind you, do not have this part in jewellery or coins or bars. In fact, do not have it in any physical form at all because when you take it in physical form, so many add-on charges like making and hallmark charges come in which are a sunk cost for you as an investment. Other charges like safe-custody locker costs also cannot be ignored,” said Pranav.
“If not physical, then you probably advocate ETFs and Mutual Funds”, that was AK proudly displaying his newly acquired knowledge about investment avenues.
“Great AK. Absolutely bang-on. Gold ETFs are the cheapest but require a demat account. Gold MFs are slightly more expensive but do not require a demat account and can even be accumulated slowly using the Systematic Investment Plan (SIP) route. Suit your convenience whether you want to put in money at one go or average out over a period of time” commended Pranav.
“Thanks Pranav. Today was a real eye-opener. At least I always thought Gold was the safest and most-dependable investment!”, said Rajesh gratefully.
“But one very important thing!” Pranav called out as they all were about to leave the Club house and go to their cars.
AK and Rajesh turned back questioningly.
“I do not guarantee your safety if you go home now and attempt to persuade your wife to sell off all her gold jewellery, due to the conversation we’ve had today,” chuckled Pranav, followed by a loud full-throated laughter from the other two friends!