India is one of the largest consumers of gold in the world. Buying gold has traditionally been an emergency fund, a tool to tide over financial emergencies. India uses gold mainly in the form of ornaments and investments. This yellow metal is considered to be an important part of an investor’s investment portfolio for a number of reasons. Even commodity traders, invest a part in gold bullion. Gold rates in India are affected by a wide range of factors such as global production, prevailing market conditions and the strength of the currency.
How is the Gold Rate determined?
The gold price is determined by the combination of various factors, such as demand, supply, investor behaviour Multi Commodity Exchange (MCX) index, commodities market and many other financial factors. Further discussed are some reasons for the gold rate fluctuations in India.
|GOLD RATE KERALA|
Why gold rate fluctuates in India?
There are a number of factors which cause gold rates in India to fluctuate. Some of the factors have been discussed below:
Demand-Supply equation: Global demand for gold is 1000 tonnes more than its supply. On the flip side, even with constant demand, the gold rate today might be different than it was yesterday due to supply issues. Like mentioned above, gold demand is more than its supply and with no new mining capacity coming through, most of the gold is being recycled. If one of the largest gold mining companies such as Rio Tinto, decides to decrease production, the current gold rate worldwide will see a surge. On the other hand, if a central bank decides to start liquidating their gold assets, the increased supply would cause the gold rate in Delhi and other states across India to drop.
Global production cost: The gold rate today in India is significantly affected by the cost incurred to mine yellow gold. If the production cost increases then mining companies will charge higher gold price at the time of selling and this will impact the overall global gold prices. You can easily use a gold price chart to understand how the increase in production costs has impacted the price of gold rate in India.
Industrial uses: Gold is used in many industrial applications such as circuit boards, in mobile, GPS and in various other medical devices. As our consumption of cutting-edge products increases, so does the demand for gold which ultimately affects the gold rates to go up.
Rupee-dollar equation: Performance of the US dollar highly influences the gold rates in India. Since our country imports around 900 tonnes of gold annually, a falling dollar will likely appreciate the price of gold in rupee terms and vice versa.
Global crises: Due to global crises, investors lose confidence in stock market investments and instead prefer to invest in stable and precious gold. This results in high demand for gold which results in an increase in gold rates.
Inflation rate: Due to the surge in the inflation rates, the value of our currency goes down. This is when most people tend to hold money in the form of gold due to its ability to hedge against financial and economic crises. This increases the demand for gold which increases the gold rates in India.
Interest Rates: Investments made in gold do not usually offer any interest benefits. An exception is the Government of India’s Sovereign Gold Bonds which offer 2.50% fixed interest annually. When the RBI hikes interest rates, people start selling gold to invest in bank deposits and government bonds. This causes the demand for gold to fall which also causes the price to dip.
Why are Gold Rates different in different cities of India?
Gold prices slightly vary from city to city in India due to the following reasons:
Transportation/ hauling cost: The cost of safeguarding and hauling cost of gold is expensive and is added to the sale price which further impacts gold rate in different cities of India.
Bullion Association: Prices of gold also differ on account of different jewellery associations in India. Bullion or jewellery associations are responsible for regulating the gold prices on a daily basis which is done twice in a day. The gold prices are calculated by taking international gold prices at that particular time plus incurred cost which leads to the variation of prices in different cities.
How to Invest in Gold?
Gold is considered a perfect portfolio diversification tool; a tool to tide over financial emergencies. There are two ways to invest in gold:
- Paper Gold: An Investor has an option to use gold exchange traded funds (ETFs) and sovereign gold bonds.
Gold ETFs: ETFs are similar to index mutual funds but they are traded just like stocks. It is similar to buying an equivalent sum of physical gold but without having to store the physical gold.
How to get started with Gold ETF?
Such investments (buying and selling) happens on a stock exchange, NSE or BSE, with gold as the underlying asset. To get started with the gold ETFs, you need a trading account with a stock broker and a demat account. The investor has the option to either invest in lump sum or even at regular intervals through systematic investment plans (SIP). When you want to sell the ETFs, you can sell it on your trading interface like any other equity.
Sovereign Gold Bonds: They are issued by the RBI and are listed on the National stock exchange and the Bombay Stock exchange. The tenor of the bonds is 8 years with the exit option available after the 5th year. Investing in SBGs helps you earn an assured interest rate where the interest will be credited semiannually to your bank account. They are denominated in multiples of 1 gm of gold and the maximum one can invest in is 4 Kg.
How can I buy Sovereign Gold Bonds?
These bonds are bought from banks, stock exchanges, designated post offices, etc. and their availability is notified by them. The interest rate and price will be notified by the RBI at the time of issuance. One can buy SGBs through banks as well. SBI and ICICI are few banks where one can invest in these bonds by logging in their website.
How to sell Sovereign Gold Bonds?
The maximum tenor of SGB schemes is 8 years. However, if one wants to encash and redeem the bond, one can do so after 5th year from the date of issue. If it is held in demat form, it will be tradable on exchanges or else it can be transferred to any other eligible investor. The interest and redemption proceeds will be credited to the bank account
Digital Gold: Another way of investing in gold is through Digital gold where one can get started from as low as Rs.1. Many mobile wallets offer digital gold however the fineness and purity differs. Digital gold offered by MMTC-PAMP is 99.9 percent pure whereas SafeGold offers 99.5 percent purity.
Where can I buy digital gold?
Mobile wallet platforms such as Paytm, Gold Rush (offered by the Stock Holding Corporation of India), Me-Gold launched by Motilal Oswal allows consumers to purchase gold coins and jewellery online. All of these mobile applications are associated with MMTC-PAMP. However, one should note that investing online using these mediums won’t earn you any interest unlike other options such as gold bonds, etc.
Mutual funds which further invest in gold ETFs: There are gold MFs (fund of funds) which invest in the shares of international gold mining companies. Gold, also known as Gold Funds on Funds, are open-ended funds that invest in gold ETFs. Investors can invest any particular amount of money at any time. The process of investing in gold mutual funds is somehow easier as you do not need a demat account. Investors can also use the SIP route to invest in gold funds, which is not possible with gold ETFs. Gold mutual funds also closely relate and track the actual price of gold. However, the cost of asset management is slightly higher (it currently stands at 1.5%) and this sometimes lowers the returns.
Gold Saving Schemes
Many jewellers have been offering gold jewellery saving schemes that helps buyers to save systematically for the chosen tenure and buy gold when the term ends. The buyer needs to deposit a fixed amount every month for the chosen tenure and the jeweller on the other hand will add a month’s installment at the end of the tenure as a bonus. After the end of the term, you can buy gold from the same jeweller at a value which is equivalent to the total money deposited, including the cash incentive.
So, if you invest Rs.5,000 a month, after 11 months you would have invested Rs.55,000 in the scheme and the retailer will either add Rs.5000 or an amount equal to 75% of the last installment. This way you will be able to buy jewellery worth Rs.60,000.
Note: The quantity of gold you can buy depends on the gold price prevailing on maturity.
Here are few gold savings schemes you can invest in:
- Tanishq Golden Harvest
- GRT Golden Eleven Flexi Plan
- Jos Alukkas Online Easy Buy Gold
- Golden Gain Plan From Malabar Gold
- Jos Alukkas Easy Buy Gold Purchase Plan
Note: There are other gold saving schemes available in the market. However, if you wish to buy into such schemes, stick to reputed jewellers and make sure they are regulated under the Companies Act.
Why Should I invest in Gold?
Listed below are some of the reasons why one should have gold in their investment portfolio:
Many investors add gold in their portfolio because of its ability to hedge against inflation and devaluation of the currency when other asset classes are not able to perform well.
In case of financial emergency, one can bank upon physical gold as one can liquidate gold faster if compared with other physical assets. Even if one have Sovereign Gold Bonds, they can be redeemed. Before liquidating your accumulated gold remember that the redemption amount in the case of physical gold depends on its purity, denomination, market price, etc. And in case of paper gold such as gold ETFs, the gold price at the day of redemption will determine the amount you will get on your investment.
It is seen that gold retains its value not only in times of financial uncertainty but in times of geopolitical uncertainty as well. It is seen when world tensions are on the rise, people start parking their funds in gold.
Note: Financial planners suggest one should consider investing in paper gold such as gold exchange traded funds, sovereign bonds instead of physical gold as they are more cost-effective and offer more liquidity. But one might wonder how much gold should investors add in their portfolio? Portfolio allocation analysis suggests one to hold between 2% to 10%.
How to buy Gold?
It depends in which form you want to buy gold in.
Gold coins: Gold coins can be bought from jewellers, banks, non-banking finance companies and now even from e-commerce websites such as Amazon India, Paytm,etc. where one can buy gold coins online and get the coins delivered at home
Jewellery: Physical gold can be bought from a jewellery shop or through their online portal or other websites such as caratlane.com or Bluestone.com
How to sell gold?
You can sell gold bars and gold jewellery by taking it to the nearest and reputed jewellery shop. However, do take your bill or invoice along with it and the jeweller will give you the cash for gold depending on how much it is worth and its purity.
Physical gold or Sovereign Gold or Gold ETFs – Which one is better and why?
We Indians love possessing gold in the form of jewellery. However, owning it in this form has its own concerns about safety, high making charges which can’t be recovered, and design that can become outdated.
Sovereign Gold Bonds and Gold ETF are cost effective. While Sovereign gold bonds mature after 8 years, the lock-in period ends from the 5th year; thus, making it beneficial for those who want to invest in for a longer period. In case one is looking for liquidity, a gold ETF is a better option as owing units are much easier than bonds. Below is the comparison on the basis of the certain parameters:
08th August 2021Rs. 47,202.00Rs. 46,294.00
07th August 2021Rs. 47,828.00Rs. 46,916.00
06th August 2021Rs. 47,828.00Rs. 46,916.00
05th August 2021Rs. 47,776.00Rs. 46,864.00
04th August 2021Rs. 47,762.00Rs. 46,850.00
03rd August 2021Rs. 48,014.00Rs. 47,093.00
02nd August 2021Rs. 48,080.00Rs. 47,162.00
01st August 2021Rs. 48,080.00Rs. 47,162.00
31st July 2021Rs. 48,294.00Rs. 47,380.00
30th July 2021Rs. 47,938.00Rs. 47,052.00
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