Gold prices and their relationship with the US dollar or the dollar index are strongly correlated. As the dollar rises, gold prices tend to fall, while when the dollar weakens, the price of gold tends to increase. In 2023, the dollar index has weakened by 1.53%, which has helped support commodity prices, including gold, according to experts. Due to geopolitical tensions and concerns about a global economic slowdown, gold is increasingly being seen as a safer investment option or a safe-haven asset.
Investors can hold up to 15% of their portfolio in gold to add diversification. While physical gold remains popular in India, investing in paper or electronic gold is becoming more popular. Electronic gold can be invested in using Sovereign Gold Bonds, Gold ETFs, and Gold Saving Funds (Gold Mutual Funds).
To invest in Sovereign Gold Bonds and Gold ETFs, one must purchase at least one unit of the value of one gram of gold, while in a gold mutual fund, one can start with a minimum SIP of Rs. 1,000. There is no maximum limit for investment in Gold ETFs and Gold Funds, but in Sovereign Bonds, an individual can invest in a unit worth a maximum of 4 kg of gold per financial year.
Gold ETFs can be bought or sold on the stock exchange at any time, while Gold funds can also be redeemed at any time. In contrast, Sovereign Gold Bonds cannot be sold at any time and have a maturity period of eight years, but after five years, there is an exit option.
Sovereign Gold Bonds offer a 2.5% annual interest rate on initial investment, which is payable every six months. In contrast, Gold ETFs and Gold funds do not offer any interest. Fund houses charge investors for managing Gold ETFs and Gold funds, which is known as Total Expense Ratio. Additionally, investors need to pay an Exit Load if they redeem Gold funds before a specified period. Sovereign Gold Bonds do not have any such additional expenses.
While investors can take loans against Sovereign Gold Bonds from banks in case of emergencies, this facility is not available for Gold ETFs and Gold funds. Tax benefits on Sovereign Gold Bonds are only available when held until maturity. If redeemed before maturity, investors will have to pay taxes on them, similar to Gold ETFs and Gold Funds.
Digital gold is another investment option, which can be invested in through mobile wallets like Google Pay, Paytm, MobiKwik, and PhonePe, as well as through many jewelry brands.
To sum up, gold has always been a popular investment option, especially during uncertain times. The relationship between the price of gold and the US dollar is an important factor to consider when investing in gold. With the current weakening of the dollar index, experts believe that investing in gold, particularly in electronic form, can be a good option. Sovereign Gold Bonds, Gold ETFs, and Gold Saving Funds are all electronic options available for investing in gold. Each of these options has its own advantages and disadvantages in terms of expenses, interest rates, taxes, and liquidity. Additionally, investors can also consider investing in digital gold through various platforms. Ultimately, before making any investment decision, it's essential to do your own research and seek professional advice to make an informed choice.
The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently, the author is the founder and managing partner at RRL Global services.
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