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Tanvi has been a full-time personal finance journalist and now leads a multi-faceted existence as a wife & mum, and now a Certified Financial Planner and wine sommelier.

Gold or silver for festival investment?

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When you say gold, vivid images of yesteryear Bollywood composer Bappi Lahiri, or current hip-hop stars Jay Z and Kanye – flaunting all the shimmer on their neck – come to mind. If you’re among those who like to bling it on, nothing compares to investing in gold jewellery. But it looks like silver’s making a comeback as the elegant young lady’s staple!

We help you understand them better so you buy them right.

The case for gold

As Indians we are traditionally devoted to gold, irrespective of the price. Whatever the occasion – celebration, reward, award, recognition – sometimes, even when there’s none, gold is the commemoration of choice.

Jewellery at weddings, gold coins standard gifts on festivals, investment and often just a safe haven to park money – it has many purposes. So eyes don’t pop out when you discover that as a country, we consume almost 800 tons of gold a year – inarguably the world’s largest consumer. 2016 saw the value of gold appreciating by almost 25%.

According to Naveen Mathur, Associate Director – Commodities & Currencies Business, Equity Research & Advisory – Angel Broking, “The fall in global equities, inflows in gold funds, buyer’s interest in the yellow metal, concerns over financial instability and economic growth, and negative interest rates across the world have all created a positive move in gold prices.” But remember that gold prices aren’t a one-way street.

Tread with caution

In 2013, gold’s bullish run ended with losing about 28% value, after a 12-year rally upwards. “Investing in gold requires an understanding of a complex set of factors like the growth in the US economy, strengthening dollar index, investment demand, and growth in the Euro area, China & Japan at large”, adds Mathur.

If you’re looking to invest in gold, it makes most sense to do it in a timely manner by spreading out your investments, rather than concentrating all purchases or a big buy at one go. “Ideally you can buy gold at the current price of Rs 31300 to see it go higher towards Rs.33000 mark by the end of this year”, adds Mathur. It may be wise to allocate at least 10 percent of your overall portfolio in gold in order to create a hedge against anything unruly happening in the world – it is a safe haven after all.

Buy in various forms

You can buy gold in its physical form by way of coins or bars, certified for purity and available at jewelers as well as leading banks. It is ideal for gifting especially during festivals. For investment though, consider buying gold in an electronic form via Exchange Traded Funds (ETFs). ETFs are based on gold prices and invest in gold bullion. They trade on the cash market of the National Stock Exchange, like any other company stock, and can be bought and sold continuously at market prices. Because of its direct gold pricing, holdings of an ETF are completely transparent. “Its unique structure and creation mechanism lowers the expense on ETF when compared to physical gold investments”, says Mathur.

If you want to maximize returns, opt for the government’s newer gold monetization scheme, which allows you to create a gold deposit and earn interest thereon as well as benefit from the capital appreciation. The lure? Earnings from gold monetization schemes are exempt from capital gains tax, wealth tax as well as income tax.

There are also sovereign gold bonds issued by the government, a substitute to buying physical gold and you can buy as little as 1 gram of gold. Not only will you earn interest on the bond @2.75% per annum but also benefit from the appreciation in the price of gold.

Silver Lining

Although gold has always taken the edge over silver for its many uses, investors have begun taking active interest in silver. According to Mathur, “From an investment perspective, silver at current prices i.e. Rs.47000 per kg in the Indian markets is a very good level when compared to the highs of around Rs 70,000 per kg in 2011. The fall in silver prices has been drastic when compared to gold; so it’s a bargain for investors.”

Silver is often referred to as gold’s younger brother. The fact that an ounce of silver is cheaper to buy than the same amount of gold makes it more approachable. The demand for silver is likely to rise in the upcoming festive season in comparison with gold, especially because the latter depends on factors ranging from rate hike in the US, weak investment and physical demand from India and China, the two biggest consumers.

The Flipside

Having said that, silver tends to be more volatile than gold as there is a lot more speculative demand for the metal affecting its price. Also, you can only buy silver through coins and bars in India considering there is no silver ETF available yet for investment in India. The other option is to buy silver on the commodity exchanges, which, again, is not advisable as it is mainly for trading.

Other metals?

“Investing in any other metals is a big no no,” says Mathur. Even though metals like copper and aluminum are traded on commodity exchanges, there is no physical delivery offered, hence making them more speculative in nature! Platinum is another precious metal one may consider, but this too has more industrial applications and is sparingly – however, increasingly being used in jewelry.

Gold and silver are precious for a reason. But both metals go beyond just being bought in physical form. Buy with caution and reap its rewards!

Disclaimer: The views and opinions expressed in this article are for informational purposes only. The authors and publishers are not responsible or liable in any manner for any actions you might take relying on the contents of this article.

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