6 Reasons Why Gold Is Not A Good Investment This Akshaya Tritiya

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Whenever gold prices soar, it has been a bad bet as an investment. Let's cite some classic examples. In Aug 2013, gold prices in India soared to Rs 34,000, when the Syrian crisis hit a new peak. Since then it has dipped to the current price of Rs 30,100.

Logically speaking, if somebody purchased gold in 2013 at Rs 34,000 he should have got close to Rs 45,000 per 10 grammes, assuming a 10 per cent annual returns, if he had placed the money in bank deposits. So clearly, instead of making 30 per cent in 3 years, he has lost almost 12 per cent in three years.

Check gold rates in Indian cities here

With gold prices soaring yet again, here are 6 reasons not to buy gold this Akshaya Trithiya.

Government discouraging gold consumption

India is among the biggest consumers of gold. The government's push to reduce gold consumption through the Gold Monetization scheme and Gold Bonds, is likely to reduce demand. Hence, as demand for physical gold reduces, gold prices could stagnate or fall. As an investment it may make gold a bad proposition.

Lack of triggers for a rally

Things are rather calm on the global front at the moment. Gold cannot rally in the absence of geo-political tensions or economic chaos. At the moment we cannot see that happening. Every political and economic crises in the past has led to a rally, in Gold whether the Lehman Brother crisis or Middle East tensions.

Threat of US Fed hiking interest rates

The US Federal Reserve is set to meet in June and most analyst are expecting a 25 basis points interest rate hike.

When interest rates are hiked investors move money from gold and equities into fixed interest yielding securities. Not good news for gold.

Gold and rupee movement

India imports gold and hence, a lot depends on how the rupee moves against the dollar. It is unlikely that the rupee would fall too much against the dollar, which means gold imports are unlikely to become costlier.

India's currency reserves are strong and the current account deficit is low. Chances of the rupee falling dramatically from these levels is very less.

Storage charges, threat of theft

Gold as an investment is bad because it also needs storage facilities. If you store at home there is a risk of theft and a bank locker means more expense.

Also, the buy and sell margins on gold are huge, which makes it difficult to make money. If you are forced to buy for marriage or occasions that is fine, or else as an investment it is not the best bet.

Gold and dollar movement

Gold and dollar are inversely related. Gold prices fall when the dollar rises. The dollar is unlikely to fall, as the US economy remains strong. Thus, gold may not find too much support from a rising dollar.

 

Read more about: gold, akshaya tritiya
Story first published: Monday, May 9, 2016, 8:06 [IST]
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