Disadvantages of Investing in Gold - It's Time to Think Beyond Gold!
21st century broadened the horizon for investors, ushering the scope of portfolio diversification in a way like never before. A leap beyond the dogmatic mindset- capitalists ventured out into unseen quarters and made the most out of the emerging neo capital market that dared to encourage the offbeat, unlike the tried and tested.
Especially in the Indian context, a major transition is reflected by the gradual shift in the fetish for gold- ones regarded an ideal insulation against financial irregularities. The era mandated by practices of enhanced diversity, cultivated the culture of investing in financial products that ensures regular returns along with potential tax benefits, and the promise of liquidation without fringe costs.
Unfortunately gold does not seem to satiate the quest. The myriad disadvantages that plague the priceless commodity might not have lessened its value, but has definitely lead the common man to opt for the better.
Let's take a look at the potential shortcomings that define the disadvantages:
In spite of the clearly etched disadvantages, there have been times of exception when gold has clearly emerged a victor, favoring investor sentiments. But then with an array of secure, flexible and high return investment option available in the market gold looks be soon losing its luster. Perhaps the time has come to think beyond!
- Gold rate is invariably affected by dollar prices. Often considered a hedge against inflation, gold prices have experienced fluctuation during the most stable phases in recent times diminishing the aura that gold stands tall against economic turmoil. The span between 2003 and 2013 saw a sharp rise in gold prices in the US up to $2000 from $300 followed by a decline to $1200. In fact, a long stretched bearish period from 1980s to 2001 exposed volatility of gold, when the prices plummeted to $258 from $670.
- Gold has forever been the hoarder's favorite- an element that can be accumulated without being accountable. This was one of the prime reasons why not much heed has ever been paid to its inability to offer tax exemption. This happens to be one of the greatest disadvantages of gold investments.
- Gold investments made in the form of gold bars or coins do not promise returns equivalent to the purchase value. In fact banks selling the same do not buyback once sold.
- Gold is never resourceful in channelizing regular returns unlike stocks that pay dividends and bonds that promises interest. Therefore, it is never a potential form, of passive investment and can be traded only through the open market.
- Liquidity has been a constant concern with gold. In India majorly gold is used for making ornaments demanding whooping making charges beyond the actual gold rate. This discourages one to liquidate such assets until stricken by a dire emergency in order to save the extra expense incurred on a marvel.
- Physical gold deposits demand ample storage space. Thus, one is liable to pay high locker maintenance charges in order to secure the investment.
- In case one considers investing on Gold ETFs, he is invariably expected to pay the brokerage as well as the fund management fees charged by the issuing house, increasing the per unit price of gold.
- It has been noted that the resale value of gold often is lower than the purchase value. If sold to a jeweler other than the one purchased from, he is sure to question the purity. Thanks to the hall mark integration, that has considerably brought down the discrimination to some extent.