People have been investing in physical gold for ages. Possession of gold in the form of jewelry, coins, or bars is still seen as a wealth and status symbol. When it comes to coins and bars, it is more beneficial to invest in smaller sizes as compared to bigger ones. Bigger, heavier bars and coins are good to look at, but they are not liquid- meaning it is difficult to buy and sell them. Gold jewelry is relatively easy to purchase and sell. However, gold investments come with a few risks, which are discussed below:
Security and Storage:
Physical gold is prone to theft or robbery due to its high value in society. Physical gold- be it jewelry, coins or bars comes with concerns of storage. Physical gold can only be stored in highly secure safes and should be protected against potential fire hazards as well. As a rule of thumb, gold should be kept in a safe deposit box provided by the banks or a secure vault that is protected against humidity and temperature fluctuations. Keeping your gold in banks also comes with risks- bankruptcy, bank robbery, natural disasters, etc. As per RBI guidelines, banks are not liable for any loss of valuables that may happen in such situations.
One of the major concerns while investing in physical gold is its purity. The actual value of gold is measured in terms of its purity, and the purest form of gold is called 24K or 24 carats. Gold is mixed with small amounts of copper, nickel, palladium, zinc, or silver while molding them into jewelry to increase its strength and durability. Care should be taken to conduct adequate research and find a trustworthy and reputable gold seller.
One of the major risks associated with physical gold investments is the manufacturing charges that come with it. If not always, these manufacturing costs exceed the actual cost of the gold you are purchasing. While purchasing physical gold, there is an added expense of 3% of GST. If you have decided to invest the purchased physical gold, you are also required to incur capital gain taxes depending on how long you have held the gold.
The only way to get a profit out of your gold investments is by selling them at a market price greater than when you bought them. The risk associated with these kinds of gold investments is that they are heavily dependent on market fluctuations. Unlike other gold investments such as mutual funds and ETFs, physical gold investments do not generate passive income. Therefore, it’s better to invest in many options for the purposes of profile diversification and early retirement.