Buy Paper Gold
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A diversified investment portfolio is an excellent way to protect your wealth. Among the many different options, from stocks and bonds to real estate and fine art, one of the best is to buy gold. Of all the precious metals, gold has been a dependable investment around the world for centuries.
Before paper currency, gold itself was used as money for over 2,300 years. Persia, ancient Greece, and the Roman Empire through to the colonial empires of Spain, Portugal, and Britain used gold for currency. Fiat currencies used the gold standard for valuation well into the 20th century. So, to this day, gold is recognized as a global currency.
Compared to paper gold and fiat currencies, physical gold is much more stable. It can withstand political and government interference, as its value extends beyond national borders. And while other investments and fiat currencies have come and gone, physical gold is still highly valued, even after thousands of years.
Physical gold retains its value and purchasing power even through long periods of time, holding its own against inflation. The following chart is an excellent example. It compares the price for one litre of beer at the Munich Oktoberfest in euros to gold since 1950.
You can see that buying a litre in fiat currency increases over the years, while gold holds steady. Tellingly, the spike from around 1971 correlates to the USD leaving the gold standard, affecting most other currencies. Furthermore, the US dollar has lost more than 98% of its value relative to gold since 1913.
Physical gold not only retained its purchasing power, but its value is not affected by inflation or fiat currency values. Historically, gold prices are inversely correlated to the USD and other currencies (gold goes up as USD goes down). This makes gold a reliable hedge against inflation and currency risks that would affect paper gold.
Because physical gold is not linked to a government or monetary system, it can be a safe haven against many different risks. During uncertainties caused by financial or political turbulence, many financial institutions that act as counterparties to paper gold will be adversely affected, which will have a knock-on effect on the paper gold value.
Just as physical gold is not linked to a government or financial system, neither is ownership of physical gold. So, it is not dependent on any banking system for its value or its regulation. It can be bought, sold, and stored privately and confidentially. You can keep it on your property in a safe or at a secured storage facility or vault.
Unlike paper gold, which is essentially a financial product regulated by exchange or authority, any physical gold transactions can occur confidentially without having to involve third parties, such as banks or regulators.
If you look at all the paper gold, such as through the London wholesale gold market or US COMEX gold futures, the volume traded is massive when compared to the actual amount of physical gold available. This is because the paper gold actually is backed by very little physical gold. Furthermore, ETFs, one of the most popular forms of paper gold, is linked more to the price of gold, not the physical asset itself. So, to convert paper gold to physical gold would be extremely difficult, if not impossible.
This proves extremely problematic for paper gold if ever markets become unsustainable. While physical gold holds its value and is easily liquidated, bought, and sold, paper gold is a victim to increasing regulatory oversight and requirements as well as counterparty risks and possible collapse.
Paper gold is a financial product usually issued by a bank. So, it may need to be linked to a bank account and will have to follow all banking regulations regarding inheritance. Physical gold can be given directly to family members so that they have immediate access at any time.
J. Rotbart & Co. is here to address all your physical gold and other precious metals needs. We provide a range of services, such as purchasing, selling, transporting, and storing physical precious metals. We source gold, silver, platinum, and palladium bullion bars and coins globally in a secure and confidential manner. If you want to secure your wealth and diversify your portfolio, contact us at [email protected] to fulfil your physical precious metals needs.
Although buying this precious metal in its physical form has been a traditional practice, individuals now have the option to invest in paper gold. The following sections include some of the ways through which one can buy paper gold in India.
While physical gold is still quite popular in the country, paper gold is increasingly gaining relevance. There are various benefits of investing in it as compared to physical gold, which has led to the recent popularity of paper gold.
One of the ways to own paper gold is through gold ETFs. These investments take place on the BSE and NSE with gold as the asset. Investing in such ETFs is highly cost-effective as compared to physical gold which requires high buying as well as selling charges. In addition, individuals can enjoy transparency in pricing if they opt for these ETFs.
One can purchase gold ETF units via a lump sum investment. Alternatively, they can invest in regular intervals via a SIP. Individuals can buy even 1 gram of gold through these ETFs. Although there are no entry and exit charges, investors have to pay an expense ratio (roughly around 1%) and a broker charge. Brokerage charges will be incurred every time an individual buys or sells a unit of gold ETFs.
Gold mutual funds invest in either gold ETFs or in any foreign gold fund. With these mutual funds, investors can opt for a SIP through which they can invest in gold on a regular basis and thus avail of the advantages of RCA (Rupee Cost Averaging).
Individuals can now buy coins, bars or jewellery online. Buying digital gold is similar to buying physical gold, provided the entire process takes place online. In other words, this is 24 karat, vault-stored gold that a buyer can access anytime through digital platforms.
Although investing in paper gold comes with certain benefits, one should think carefully before making a choice. SGB is a suitable option for long-term investors as they attain maturity in the eighth year. Gold ETFs provide better liquidity than SGBs.
Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a way of diversifying risk, especially through the use of futures contracts and derivatives. The gold market is subject to speculation and volatility as are other markets. Compared to other precious metals used for investment, gold has been the most effective safe haven across a number of countries.[1]
Gold has been used throughout history as money and has been a relative standard for currency equivalents specific to economic regions or countries, until recent times. Many European countries implemented gold standards in the latter part of the 19th century until these were temporarily suspended in the financial crises involving World War I.[2] After World War II, the Bretton Woods system pegged the United States dollar to gold at a rate of US$35 per troy ounce. The system existed until the 1971 Nixon Shock, when the US unilaterally suspended the direct convertibility of the United States dollar to gold and made the transition to a fiat currency system. The last major currency to be divorced from gold was the Swiss Franc in 2000.[3]
Since 1919 the most common benchmark for the price of gold has been the London gold fixing, a twice-daily telephone meeting of representatives from five bullion-trading firms of the London bullion market. Furthermore, gold is traded continuously throughout the world based on the intra-day spot price, derived from over-the-counter gold-trading markets around the world (code "XAU"). The following table sets out the gold price versus various assets and key statistics at five-year intervals.[4]
Given the huge quantity of gold stored above ground compared to the annual production, the price of gold is mainly affected by changes in sentiment, which affects market supply and demand equally, rather than on changes in annual production.[14] According to the World Gold Council, annual mine production of gold over the last few years has been close to 2,500 tonnes.[15] About 2,000 tonnes goes into jewelry, industrial and dental production, and around 500 tonnes goes to retail investors and exchange-traded gold funds.[15]
Central banks and the International Monetary Fund play an important role in the gold price. At the end of 2004, central banks and official organizations held 19% of all above-ground gold as official gold reserves.[16] The ten-year Washington Agreement on Gold (WAG), which dates from September 1999, limited gold sales by its members (Europe, United States, Japan, Australia, the Bank for International Settlements and the International Monetary Fund) to less than 400 tonnes a year.[17] In 2009, this agreement was extended for five years, with a limit of 500 tonnes.[18] European central banks, such as the Bank of England and the Swiss National Bank, have been key sellers of gold over this period.[19] In 2014, the agreement was extended another five years at 400 tonnes per year. In 2019 the agreement was not extended again.[citation needed]
Although central banks do not generally announce gold purchases in advance, some, such as Russia, have expressed interest in growing their gold reserves again as of late 2005.[citation needed] In early 2006, China, which only holds 1.3% of its reserves in gold,[20] announced that it was looking for ways to improve the returns on its official reserves. Some bulls hope that this signals that China might reposition more of its holdings into gold, in line with other central banks. Chinese investors began pursuing investment in gold as an alternative to investment in the Euro after the beginning of the Eurozone crisis in 2011. China has since become the world's top gold consumer as of 2013[update].[21] 59ce067264
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