Akshaya Tritiya, by Indian tradition, is considered an auspicious day for buying gold. Nowadays, there are quite a few options for investors who want to invest in gold, other than physical gold. Prominent among them are Gold ETFs,Gold Funds and Gold coins from banks. Let us take a look some of the advantages and disadvantages of these products.

Physical Gold or Gold coins: 

Buying and selling physical gold adds substantial costs to your purchases, since jewelers always charges a making cost of 7 to 21 per cent over and above the price of gold. Also, when you want to sell it back to the same jeweler, you would be offered lesser price than the market price, which is a big disadvantage in investing in physical gold.Also storing your physical gold in lockers can cost you about Rs.1000-5000, depending on the institutions which offer you lockers and there are always risks associated with such placements.

As far as Gold coins are concerned, they are similiar to physical gold, involving costs of about 4-5% of the price of the gold.You can either buy these coins from the jeweller or from leading banks. You have to note that,you cannot sell the coins back to the banks as most of them don't offer such facility.

Gold ETFs:

Exchange Trader Funds or ETFs: If you have missed earlier article about Gold ETFs, you can read it here at Gold ETFs. In short, ETFs are cheaper, liquid and easily bought and sold through any stock broker with a Dmat account. Check out the list of Gold ETFs avaialble.

Gold funds: 

Gold funds ( Fund of funds) are similar to ETFs, but more simpler. They don't require Dmat accounts like ETFs and there could be some charges like entry and exit loads. These charges are less than 1%, which is the same you have to pay your stock broker when purchasing ETFs, so not much of a difference. The advantage with gold funds is that they can be bought with any amount as low as Rs.500 or 1000 depending upon the mutual fund. Also, SIP option is available, in which one can invest fixed amount every month. Check out about the features and various Gold Funds.

Conclusion:

Considering the pros and cons of all the investing options available, Gold Funds are better and ideal for retail investors and the next better option could be Gold Etfs. Now the bigger question is whether one can invest in gold at these prices ? Investors need to understand, gold as an asset class has given positive returns for the past 10 consecutive years. The prices cannot go up continously and they can correct and correct substantially. Also investing in gold should be limited to 10-15% of one's portfolio and Gold alone should not be one's core portfolio.

 Invest wisely !

The buzz word now in Gold Market is E-Gold from National Spot Exchange. What's this E-Gold all about and how is this different from Gold ETFs, which are already traded in National Stock Exchange?

E-Gold is offered by National Spot Exchange Limited(NSEL) which enables you to buy gold in electronic form, and hold it in a Demat account.

Features of E-Gold:

1. You can buy and hold minimum of 1 gram of E-Gold in electronic form.

2. The commission and the transaction charges would be about 0.5%,same as you buy any other ETF from NSE.

3. E-Gold can be converted it into physical gold, which is known as re-materialization and there are charges for this re-materialization. The minimum quantity for converting into physical gold is fixed as 8 grams.

4.Rematerialization facility is currently available in 15 major cities and hence if you want to convert it to physical gold, check with your broker.

5. VAT: When you rematerialize you will have to pay some rematerialization charges (which will be in the range of Rs.150 for 8 grams), but the VAT might be a bigger amount based on how much quantity you hold.

6. The storage charges of holding gold in demat form is Rs.0.60 per unit/month.

7. The purity of e-gold is not approved by LBMA and there is no standard benchmark in domestic gold prices.

8.One can trade in gold ETFs only till 3.30 p.m., while e-gold can be traded till 11.30 p.m., providing the investors better opportunities and flexibility.

Apart from E-Gold, the other commodities available are E-Silver and E-Copper. Since no Silver ETFs are available currently, E-Silver is a better option, if anyone wants to invest in silver. And the minimum quantity is been fixed at 100 grams and the transaction charges are similar to E-Gold. You can get the live data from National Spot Exchange.

The idea behind both e-gold and gold ETFs is the same, which is relieving investors of the worry of storage and purity, making gold investment more efficient and convenient. Though E-Gold is a cost-effective for people who have a long investment horizon, investing in gold through ETFs would be more prudent for small investors.

Axis Mutual Fund has launched an open-ended Gold ETF, Axis Gold ETF. This is yet another Gold ETF similar to already existing Gold Bees and other ETFs. During the new fund offer (NFO) period, retail investors can apply for minimum of Rs.5,000 and multiples of Re.1.

After the NFO period, the fund will be traded on the National Stock Exchange and traded like equity shares. The fund will be open for subscription from October 20 to November 3.

Why Gold ETFs ?

Gold ETFs lets you buy Gold without the necessity of taking physical delivery and without the associated risks of physical storage and impurities.

Is Gold a good investment opportunity even at this prices?

Gold has seen a steady rise since last 5 years with an annualized return of about 24%, currently trading about Rs.2000 per gram. But over 15-20 year period it tends to average less than 10% . Currently high price rise in Gold prices is due to global risk-aversion and supply constraints, as production has dropped.

Is this price rise sustainable and how much one can invest in these funds?

For the past 2 years investments in Gold has yielded more than 50%,  this doesn't mean gold will tend to keep on rising further to get sustainable returns.  Any investment in gold can be considered as an insurance and diversification only.  Therefore investors need not allocate their entire amount or large junk of their portfolio in such Gold Funds. One could invest about 10% of their portfolio only , if they haven't already invested in earlier such schemes.

HDFC AMC has launched an NFO with the name 'HDFC Gold Exchange Traded Fund'. This is yet another Gold ETF, apart from existing schemes like Gold Bees, Rel Gold etc which are already traded in NSE. The fund will invest in 90-100% of assets in Gold Bullion.

Some of the features include:

The fund will be listed in NSE and can be easily bought and sold like any other stock on the exchange through terminals spread across the country.
The minimum investment is Rs.5000/- and the NFO is open till Jul 23 2010.
Can be bought/sold anytime during market hours at prices that are expected to be close to actual NAV of the scheme.
Post-listing, the minimum purchase would be 1 unit .

Can one invest in this NFO?

Gold has been one of the biggest outperformers of most of the asset classes, recently and can be still considered for investing.  Hence, investors who don't have exposure to Gold ETFs, can consider investing in this fund.
There are many other Gold ETFs like Gold Bees, Rel Gold etc which are currently traded in NSE, which can also be considered for investments.

Rajesh Exports (REL), in a potential game-changing move for the industry, announced plans to sell products at per-gram rate, the buyer paying no wastage, making and other hidden charges. REL said the initiative, promoted as Gold Revolution, would be launched at its Shubh retail outlet showrooms.

Contrary to the general practice of all jewellery stores, Subh outlets will not charge any additional charges like wastage, making charge, value addition charge, etc. REL will sell 22 carat gold jewellery and coins with Hallmark of 100 per cent guaranteed purity.

For example, if a customer buys 10 gms of gold at a price of Rs 1,600 per gm, he actually pays 15 per cent 20 per cent more than the Rs 16,000 jewellery due to various hidden charges. But Subh will charge only 3 per cent or Rs 48 more per gram towards its various costs.

In next 3 years REL plans to open 250 Subh showrooms in various cities in the country, a ten fold jump from 25 at present. This will help the company increase its presence in jewellery retail space which now accounts only for 2 per cent of its revenue. Going by these developments REL is a definitely a stock to watch, in the coming days.

Gold futures hit the key $1,000 mark for the first time in nearly a year, as global financial worries boosted the safe-haven appeal of the precious metal. In recent action, gold for April delivery traded at $996.80 an ounce, up $20.30, or 2%, on the day. It earlier touched a high of $1,000.30. Gold for February delivery, the near-month contract which registered little volume, was last up $20.10, or 2%, at $996.60 an ounce on Globex.

Locally Gold prices set yet another record of Rs 16,000 per 10 gram in line with the surging global bullion markets on speculation that the global recession will deepen further.

Market analysts said the demand of the yellow metal picked up after the global equity dropped in the recent past.They said, investors find no other option but to park their funds in the precious metals, while physical buying for the current marriage season declined substantially.

Gold in the year 2008 outperformed most asset classes and has provided a 32-per cent return on investment.The compounded annualized returns on investment in gold in the last five years ending 2008 have been 19 per cent. In 2009 till date, gold price has appreciated by more than 12 per cent and still going stronger.

What is Gold Bees or Gold ETF?

Gold ETFs are open-ended mutual fund schemes that will invest the money collected from investors in standard gold bullion (0.995 purity). The investors' holding will be denoted in units, which will be listed on a stock exchange.They provide returns that would closely track the returns from physical gold in the spot market.

An investor can buy and redeem the units either directly from the mutual fund or from the stock exchange.Presently there are many Gold ETFs traded in NSE India. Some of the listed Gold ETFs are GoldBees,Reliance Gold,Kotak Gold,UTI Goldshare

Why choose Gold?
Gold holds its own in any investment evaluation on its strengths as a hedge against inflation, value in the event of political uncertainties and its traditionally negative co-relation with other asset classes such as stocks, fixed income securities and commodities.

The value of goods and services that gold can buy has remained stable unlike currencies that have seen significant fluctuation. A study spanning a 400-year period has shown that the basket of goods and services that gold could buy over the period has remained the same.

What returns can you expect?
The 35 per cent return that gold has delivered in the last one year and 170 per cent absolute return in the last five years is not par for the course. In the period 1970-1982, gold prices had a compounded annual growth rate (CAGR) of around 21 per cent while inflation grew by 14.1 per cent over the same period. But in the following 23 years, inflation grew by 7.6 per cent while gold prices grew by 7.78 per cent.

Why gold ETFs?
There are enough reasons why gold should be included in any investor's portfolio.Investing in gold ETFs will give the investor all the advantages of investing in gold while eliminating drawbacks of physical gold -- cost of storage, liquidity and purity, among others.

Gold ETFs allow investment in gold in small denominations, which makes it easier for the retail investor to participate. On the secondary market, the minimum lot is one unit. This enables the investor to accumulate units over time and reap the benefits of rupee cost averaging. The units can be redeemed either from the fund directly or from the market.

How will I invest in Gold ETFs?
Just like you invest in shares. You will need to have a demat account. These Gold ETFs are listed in NSE and the daily movement in their prices can be checked online like the way you keep track of your equity portfolio.

Go for gold

Over the past few weeks, we have seen a sharp fall in gold prices. This fall in price has stimulated demand for gold from consumers and investors across the globe. After a year of dull demand for gold, the sharp fall in prices provided a golden opportunity for consumers and investors waiting on the sidelines to buy gold. This sudden spurt in demand shows that consumers and investors believe that gold is attractively priced at current levels (approx. Rs. 11,000 per 10 grams).

The past few days have been very busy for gold market traders and for employees at the gold vaults. Demand has been strong and widespread, with gold markets in the Middle East, Europe and Asia witnessing quite a strong demand. The strongest demand continues to come from the Indian markets. This has once again reinforced the belief that there will continue to be increased demand for gold from consumers/investors in India. Gold refiners on the other hand have been literally struggling to meet the increased demand for gold.

Demand for gold in India has been so huge that despite a sharp increase in gold imports over the past fortnight, there has been acute shortage of physical gold in the market. Premiums charged by wholesale suppliers and banks have increased to abnormal levels, way beyond what has been seen in the past. What does this indicate for us? Is this a one-off scenario where refiners and suppliers couldn’t match the unexpected increase in gold demand i.e. they weren’t ready for it? or will there be continued supply constraints for a longer period of time?

An analysis of trends in the three main supply sources for gold (Gold Mines, Central Banks and Scrap Gold), will help to throw more light on this.
Supply of physical gold from mines has been virtually stagnant since the beginning of the decade. There has not been any major discovery of new gold reserves over the past few years. The process of exploration and opening of new mines has become even more challenging due to environmental bottlenecks, manpower, equipment and power shortages.

Historically, Central Banks have been actively influencing in the gold market. There have been many instances in the past wherein Central Banks have aggressively sold physical gold, leading to depressed gold prices. However, recent trends show that the reverse seems to be happening now. According to the World Gold Council, trends indicate that gold sales by signatories to the Central Bank Gold Agreement (CBGA), could be the lowest since the CBGA was signed in 1999. With only one month to go before the year end of September 2008, only about 319 tonnes of gold have been sold so far this year by the European central banks. This is against their maximum allowable annual (September 2008 end) sale quota of 500 tonnes. Central Banks worldwide are putting increased importance on gold reserves especially in these times of global economic turmoil. The global economy is going through a pretty traumatic period, and the Central Banks believe that having gold to back up t heir currency is a good idea.

Gold Scrap (typically old jewellery and jewellery manufacturing wastage) has been a major source of supply over the past year. At the prevailing attractive price levels, consumers would be reluctant to exchange old jewellery for new and would rather buy new gold jewellery. The increased demand and higher premiums for physical gold over the past fortnight also suggests that scrap supply has virtually vanished.

The demand in gold just doesn’t seem to be waning. It is increasing every day. Buyers who adore jewellery and those preparing for the upcoming marriage season are rushing in to buy gold. Investors want to buy more gold to protect their portfolio from rising inflation, economic uncertainity and unpredictable and volatile stock markets. Investors in India, have also increasingly preferred to buy gold through Gold Exchange Traded Funds. Globally, investors who buy gold for investment purposes have preferred buying gold exchange traded funds rather than buying physical gold coins or bars. This trend is catching on rapidly in India. This is primarily due to the many benefits that Gold Exchange Traded Funds offer including lower purchase cost, purity, security, transparency and tax efficiency.

It is increasingly clear, that demand for physical gold is set to go higher in the near term especially given the current attractive price levels. Supply of physical gold does not seem sufficient enough to satisfy the needs of hungry gold consumers. The fundamental question is - "Where is the gold supply going to come from?" Gold Mines are not producing enough, Central Banks are selling lesser gold, Scrap Gold is virtually not available. We are still ahead of the peak demand season and facing a supply crunch already. What would happen when demand accelerates during the festival/marriage season that will start from mid September onwards? Where is the gold going to come from to cater to the peak demand?

Considering all these facts, it makes sense to buy some gold now, before the demand supply mismatch leads gold to higher levels.