By Sachin Kothari
It is considered very auspicious to buy gold during the Dhanteras- Diwali festive season in India. Due to its high liquidity, ease of storage, and strong inflation protection, gold is regarded as a preferred investment option. Since Diwali last year, gold prices have risen over 20% from the level of Rs 50000/ 10 gm in the Indian market to almost Rs 60000 now.
Also Read: Dhanteras-Diwali Gifts That May Grow: Gifting Investments For The Future
Gold has made fresh record highs in Euros, UK Pounds, Japanese Yen, Chinese Yuan and most other currencies in the last 3 months. In dollar terms, it’s 4% away, while in rupee terms, it’s just 2% away. Gold first crossed the level of $2000 during COVID-19 when the first wave of catastrophe was hit in March 2020.
Then $2000 gold came on Russia invading Ukraine in early 2022, followed by $2000 gold during March 2023’s mini banking crisis. And we are again above $2000 on the Israel-Hamas Conflict. It seems, gold bulls would appear to love misery and death. Or we can say, that when there is “Fear” sentiment in the market, investors become “Greedy” to buy Gold.
Undoubtedly, the turmoil in the Middle East has created geopolitical uncertainty, which in turn has fuelled a safe-haven demand for gold and raised prices from their seven-month lows. Nevertheless, other forces are also at work in the market that are keeping prices above $2000. Those factors are growing US debt, rising deficits, falling money supply and the hawkish stance of the FED.
With all this uncertainty, I think gold will continue to do well, (even if geopolitical tensions subsidize) and continue to rise until the US government can manage its expenditure, which is unlikely to happen very soon.
Similar to historic 11-12% CAGR returns in the last 25 years, gold prices are expected to continue to rise further by next Diwali. So, one should take advantage of this bull run and allocate at least 15-20% of the portfolio amount to Gold.
There are various investment options in India:
- Physical gold – This covers purchasing gold jewellery, bars, or coins. Without a Demat account or documentation, you can purchase physical gold.
- Gold ETFs and mutual funds – These funds follow the price of gold bullion investments. ETFs for gold can be purchased using a demat account.
- Sovereign Gold Bond (SGB) – The Reserve Bank of India issues SGB, which yields an annual interest of 2.5% over and above gold price appreciation. SGBs have a minimum investment requirement of one gram of gold and are issued in multiples of grammes.
- Gold futures and Options – Exchanges like the NSE, BSE, and MCX offer this type of gold trading.
- Digital Gold – Starting from just Rs 1, one can purchase 24k 999 Pure Digital Gold online at the cheapest prices, all from the convenience of your home.
Tax
One needs to pay a 3% GST when buying gold, in the form of jewellery, bar, coin, and digital gold. While the tax implication on gold sales in any physical form or paper form remains the same.
Profit on the sale of gold before 3 years is considered a short-term capital gain and the capital gains tax is levied as per the applicable tax slab of the investor.
The profit on the sale of gold after 3 years of holding is treated as long-term capital gains and taxed at a flat 20% + 4% CESS after applying indexation.
-The author is Director, Augmont. Views expressed are personal.