Team-BHP - Investing in Gold ETF or physical Gold

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Originally Posted by bullinb (Post 1802297)

Have to pay service/die charges and VAT. This can be huge - up to 10%.

If buying jewelery - making charges can be as high as 30%

Bottom line - Gold ETF make a lot more sense for investing in gold.

What if you are buying Gold soverigns. No making charges and other stuff right? And you get it at market price, right?

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Another thing with physical gold is that many people (esp the fairer sex) have a mental block when it comes to selling. No such issue with Gold ETF.

Absolutely right, but gold financing is one such option which can go well, at least it assures the people (read fairer sex) that gold will not be sold.

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Bottom line - Gold ETF make a lot more sense for investing in gold.

Investing in ETF is not that straight as one has ti have all criteria fulfilled,on other hand when you go in for certified coins and bars, in emergency you can directly go to a jeweller or a gold financing company get the money within no time.even the processes reqd are pretty simple.So i think ETF is good, but its much easier to get in and out of physical gold( my personal opinion based on experiences).

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Originally Posted by v-drive (Post 1802222)

The biggest problem with buying physical Gold is , that you can not be sure of the quality, unless you are buying it from the banks. And if you buy from the banks, they don't buy it back from you. Which kind of puts you into a quandary.
If you have decided to have Gold as an item in your portfolio, then ETFs are the best bet. In addition to this, they also provide you with the liquidity, which might not be there if you have physical gold.

Agreed if you are planning to just for investment purposes. What if you are planning to buy after a specific period of time. Lets say I wante to keep accumulating gold in small amounts every two years. I invest in a Gold ETF and then after two years I would want liquidate the ETF units to buy physical gold for some purpose like sister' wedding, my sons thread ceremony etc. Then I will have to buy physical gold and get some jewellery done. I would not know how much my ETF redemptions would buy me gold and also account for the making charges. In this situation would buying physical gold not make sense since I would buy it from a particular jeweller and get a discount on the making charges at a later stage.

We have missed out one of the BIGGEST Pro of buying gold in its physical avatar
- It can be bought with unaccounted/black money. It is one of the best methods of appreciating your dead black money (unless of course your whole business runs on black).

I read a report once that while India is undoubtedly the biggest consumer of gold there is hardly any accountability of what kind of money is used in buying these quantities. This is a manjor reason why the quality of this gold is also questionable.

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Originally Posted by agspins (Post 1802402)

I beg to differ. ETF's are as liquid as gold and are FAR more easier to buy and sell if you have demat account. You can transact safely from home. No need to get it out of locker - carry to the jeweller - carry back liquid cash which all are quite risky. You can sell any number of ETF's in the exchange and can have the money in your account in 3 days just like any other stock. Another disadvantage of selling physical gold is that you cannot sell fractional bar/coins - at least not at best price whereas ETF's are traded in terms of units which correspond to 1 gram of gold.

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Originally Posted by ghodlur (Post 1802416)

Your purpose for investing/saving should decide how you invest/save. if the purpose is to make jewelery at the end of the day, then what you have suggested is as good as any other mean. My suggestion was more from a point of using Gold as a hedge in the portfolio.

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Originally Posted by anToNIcHeN (Post 1802387)

What if you are buying Gold soverigns. No making charges and other stuff right? And you get it at market price, right?

No you don't. Banks usually add all the charges in their price and that is the reason the selling price from the banks are usually higher than jewellers. Jewellers on the other hand either charge a service charge or a so called "die charge" over and above the market price. On top of it, you have to pay VAT.

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The premium charged by a bank is the sum of a consignor’s making charges, its own fixed fee, value-added tax and customs duty. “A 10-gm gold coin attracts Rs 206 customs duty, making charges of about $5-10, 1% VAT and a profit margin ranging from 6-15%. This usually takes the price higher by a minimum of 10% from the base price of gold,” said a bullion desk official from a leading PSU bank.

A jeweller, on the other hand, can resell the same coin to a customer at the prevailing rate of gold and a margin of not more than Rs 100-200 per 10-gm coin, say traders from Zaveri Bazaar

Source: Economic times

My preference is ETF because of

1. No headache about quality/purity levels

2. No hassles of storage

3. Can invest in small amounts of even 1g

4. Selling of is much easier, as the fairer sex is not holding it ( jaguar already mentioned it)

5. AFAIK, if you want to sell of your hard gold coin or ornament to a jeweller (even the source himself) and take back hard cash - then they will deduct certain % from the amount. No such deduction for the ETF. Ofcourse the demat accounts brokerage will be there, but it is really a minuscle amount.

6. You know exactly how much amount you are going to get back by selling a certain number of units, just by looking at the website. There is no uncertainty involved in the purity evaluation by the jeweller.

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Originally Posted by ThE_DoN (Post 1802454)

While you can buy gold using black money, problem is, as an asset it will still remain black money (as it will still remain undeclared for all accounting purposes!) You cant convert black money into white by buying gold from open market! So there is no fundamental gain there! Only money is being converted from cash to gold! Ok there is some gain in the sense that if value of gold appreciates in the market then you are still making some money as opposed to hard cash lying around.

On the other hand, ETF by nature is going to be all white! You'll need to have KYC done and money trail will be accounted for.

I think the best approach would be to buy ETFs with your white money and solid gold (bars) with your cash money (if you have some!) This solid gold can act as a hedge against unnatural circumstances like e.g. currency losing its value or destabilization of the country etc. On the other hand ETFs will act as asset accumulation leading to wealth creation.

But isn't the whole point of buying gold is to avoid Market volatility? Atleast that is the only thing which makes me think of gold. Market is run by people who have lot of inside information which we will never know. I do not want to trust them blindly. I do not want any Fund manager reduce my whole life saving to worthless paper. I do not want to suffer because of his mistakes.

Going ETF way somehow makes me feel that we are letting the same unreliable market force a foot in the door.

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Originally Posted by download2live (Post 2345049)

Investing in gold through ETF's is similar to owning physical gold minus the hassles of safekeeping and purity issues. The fund buys .999 pure gold on your behalf and keeps it in safe custody with a third party custodian (usually a bank), which means the price of the gold ETF floats on the basis of the market price of physical gold. You do not need to worry about the fund manager's discretion here since he is not investing actively which can impact the portfolio's returns like in equity or debt MF investing.