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Gold ETFs- An Alternative amid unstable gold prices

Gold represented by 'Au' is the most sought after precious metal. In ancient times gold was used as currency to make payments. It is highly malleable and ductile. Due to its financial stability, it holds high social and religious value. It is one of the oldest saving instrument and is regarded as a symbol of wealth.

Gold has always been a safer investment option for households. As per recent reports of World's Gold Council, Indian households hold around 25,000 metric tonnes of gold metal, making them the largest holder of the yellow metal. It is seen as a favourable investment option as its market is highly liquid. But gold is just not an article of beautification or investment, it holds high economic importance as well. The central bank maintains gold reserves to stabilize the currency. Gold prices are affected by inflation, geopolitical factors, interest rate, monsoon, taxes, and duties. Average gold rate of 24kt/10gram soared from ₹35,000 in 2019 to ₹48000 in 2020. In August 2020, gold touched an all-time high of ₹57,000. However, since then commodity experts have constantly warned that gold will undergo correction in near future.

Apart from jewelery, gold can be in form of gold funds, sovereign gold funds, gold exchange-traded funds. These funds are usually listed on secondary markets and include gold in their portfolio. Investing in gold exchange trading funds is buying gold in electronic form. One gold ETF means one gram of yellow metal. The main feature of this instrument is that it is backed by the liquidity of stock markets and at the same time, it is very simple for the investors to understand the working of these funds. These funds usually comply with the guidelines of the Securities and Exchange Board of India.

The major advantage of investing in Gold ETF is that the value of investment can be tracked easily as per market prices and there is no hassle of paying making charges, taxes, and duties since the investment is backed by solid paperwork. As per guidelines of regulatory authority, these funds can be pledged to obtain loans. Nowadays, mixing copper with gold and looting the investors is a very common market practice. However, asset management companies undergo strict compliance audit of the physical gold purchased by them. Also, there is no entry and exit load.


As we know that investment is subject to market risk, returns of gold ETF is as per the market fluctuations; for instance, these funds delivered 25-30% return post covid but as the economy started opening and investors switched to other market alternatives, the return average slumped to 8%. But this new method is way more convenient than conventional gold purchasing as investors don't physically have to visit a jewellery store, pay extraordinary charges and taxes and stock up gold at home. They can just purchase it at a click from the comfort of their homes.


By:-

Sushant Banga

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