Why should you buy gold?

Experts suggest that at least 10% of your investible portfolio should be in gold. As it happens, for many Indian families gold often represents a large percentage of the family assets, given the socio-economic and cultural factors in play. Whatever be the reasons, an investment in gold is worth considering. Here we share with you some reasons why you should consider buying gold. Possibly some or more of them relate to your personal situation.

1. Consumption - Weddings and religious occasions: In the Indian cultural context, families have always attached a lot of significance to gold, typically in jewellery or ornament form. Our TV shows, movies and mythological imagery is filled with the use of gold. Some critics, unfamiliar with Indian culture, might even refer to our use of gold as bling. Gold symbolizes value and wealth, and is a sign of prosperity. We are one of the few cultures in the world where gold is not just an investment, but rather used for consumption through daily usage in ornaments and jewellery.

Whether its festivals like Diwali or Akshaya Tritiya or events like weddings and child birth, gold is considered very auspicious. Many families start accumulating gold coins and ornaments in anticipation of a wedding in the family, or in preparation for the religious holidays. Its no wonder that India is one of the largest consumers of gold globally.

If you expect that there will be a wedding in the family, or want to prepare for a religious occasion, you might want to consider using your resources to start accumulating gold. But, please recognize that holding on to gold will not yield any income or interest. Its likely that you are buying gold when you have the money and will have no actual use of the gold till the wedding or the religious occasion, which could be years or months away. The best you can hope for is some capital appreciation if gold prices move upwards from when you bought it.

2. Investments - Store of value: All over the world, including India, gold is seen as a safe store of value. For instance, the Reserve Bank of India and almost every country's central bank, keeps a part of their reserves in gold. Similarly, the common man also buys gold bars, coins and bricks for investments. Gold can be used to provide some stability and diversification to an investment portfolio. At times when other assets like equities might be volatile due to economic recession, geopolitical trouble or inflation, gold might be a steady store of value for your portfolio.

3. Liquidity - Ability to convert into cash: Gold is a widely traded precious metal. Whether at the local jeweller, pawn shop or in the investment world, you can readily and conveniently convert your holding in gold into cash. You might be holding on to gold for this very reason to be able to convert it into cash when you need to, or you might be facing some financial hardship and as a result have decided to raise cash by selling your gold when you need money. Compare this to real estate or an investment in art where it could take you months to sell your house or painting and get cash for it because the transaction can be very time consuming.

4. Safety - Premium attached to scarcity value during crises: The world has a finite supply of gold. At times of a financial crisis, high inflation, wars (or threat of wars), gold prices shoot up as there is a flight of investors towards safe assets like gold. For instance, during the sub-prime crisis in 2008 gold was a very good performing asset that rose in price, even though the equity markets were collapsing. Similarly, when the Gulf War occurred in 2003, gold prices shot up. 
If you feel that the global situation is poor and that rather than leaving your cash in your bank which will lose its purchasing power due to inflation you want to be in a safe asset, you might want to consider purchasing gold. While it might not yield any income as discussed above, it will keep your capital safe and will likely not depreciate in value due to inflation.

If you are buying gold but are doubtful about your purchase, recognize that its been used both for ornamentation and for investment purposes for over 2,000 years. And, that's not about to change. You might not be able to time the market to buy gold at the right price, but then again you might not be left with any option given the role it plays in Indian culture.

Source: iTrust.in