7 Major Disadvantages of Investing in Gold

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Indians love to invest in gold on every possible occasion, but, many of them fail to understand why gold is not the only ideal investment.

In the past few years gold has not given any returns or may have given negative returns. Check gold rates in your city here

The failure to stick to its title as "Hedge against Inflation" has been lost as in the last two years it has given investors negative returns.

Every investment comes with risks, but gold has not given any valid reason why one should invest in gold.

7 Major Disadvantages of Investing in Gold

Yes, it did generate returns immediately after the Lehmann Brothers crisis, when investors dumped shares to buy gold. 

Investors turn to gold only at the times of uncertainty across the globe. However, they do dump it as and when the economy recovers and this is precisely the conditions that are prevailing now.

One can invest in gold in various ways based on the need. However, rates are co-related and changes in the international bullion market will impact gold. 

1) Gold Jewellery

It is really bad idea buying gold jewellery as an investment. When we buy jewellery we tend to pay making charges and wastage charges for the jeweler. Based on the design the charges are increased. 22 karat is used in making jewellery and when you sell the jeweller does not consider the making charge or wastage.

2) Gold Coin

Investing in gold coins and bars, means each time you need to sell, you get a lesser amount. Also, banks do not buyback the gold coins and bars sold.

3) Gold ETF

Gold ETFs may be slightly more expensive than physical gold because of the management fees charged by the respective fund house. Also, one has to incur brokerage which could increase the price of a unit of the ETF.

4) No regular Income

Gold is an asset which does not provide any regular income, where as any investment made in mutual funds, real estate and stocks would generate dividends and rents.

5) Storage issue

If you believe in physical gold, storage is the biggest issue. If you place your jewellery and coins in a bank locker one needs to rush each time when needed. Moreover, one needs to pay the locker maintenance charges each year. If one go for bank deposits one gets the recent returns based on the tenure.

6) Liquidity

Indians have a emotional attachment with ornaments, at the time of need, these sentiment act as a  hindrance. This fails the main motive of buying gold to use it at the time of uncertainties.

7)Price dictated by international markets

Many are not aware that Indian gold prices are influenced by the international market. Any major movements internationally will impact Indian prices as well. Dollar plays a vital role in gold prices. A stronger dollar would hurt gold sentiments.

Also read: Factors that lead to change in gold prices in India


There are very less chances of one making any profit out of it. However, if it is a part of your portfolio may not hurt as it will get balanced with other assets.


Read more about: gold, investment, gold etf
Story first published: Tuesday, April 21, 2015, 12:44 [IST]
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