Gold and Akshaya Tritiya are intricately related and even in the midst of draught and poor economics, the idea of buying gold is evident with festivities. Open newspapers today or the FM radio and you get the drift. Yes, it’s just gold and it is good to buy gold on such days as long as you do so to follow tradition and for sentimental reasons. However, if you are looking at it as an investment instrument, think again.
The enormous social and cultural affinity that we Indians have built up for gold over centuries – one cannot imagine of not buying gold as a matter of tradition. That gold price is on the up in recent times, is only the added draw for people who are happy to bet their money on the yellow metal. The tendency to allocate money to gold over other asset classes like equity is because of the fear one has of these asset classes compared to gold, which is always perceived as a safe investment. Gold, however, has two significant shortcomings, being neither of much use nor procreative.
As Warren Buffett put it in an article for the Fortune Magazine in 2012 – “Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side....” I too believe that gold is actually an unproductive asset. Unlike stocks or bonds, it’s a type of asset whose value depends on nothing but a shared belief that that value will rise and keep rising.
Unlike other investments, there is no way you can earn dividends when you put your money in gold and neither is there any interest. Yes, if you park the gold that you have in the government’s gold monetising scheme, you will earn interest – but if that matches inflation is a thing you need to mull over.
For you to actually build wealth and start on an auspicious day like today; you should start investing in equities – the only asset class which does better than inflation and builds wealth in the long run. However, if you are one with traditional moorings, forget the physical gold; consider putting money in gold ETF or a gold fund or even the gold bond. This way you will not have to worry over the safekeeping of physical gold. Make that auspicious start by looking at paper gold over physical gold; the rest will follow suit.
nk@outlookindia.com
