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To say that most individuals prefer to invest in gold is axiomatic. In this article, we discuss why gold is, indeed, a good investment for your personal finance.
Financial gold
Our discussion is about financial (gold ETFs), not physical gold. This does not mean you should not buy physical gold. You should consider physical gold holdings (primarily jewellery) as personal effects, not investments.
The following are the reasons why investing in a gold ETF is optimal: One, you may want to gift gold to your children for their wedding. You could accumulate gold jewellery over time, but it could be outdated by the time your children get married. You might as well invest in gold ETFs. That way, you can sell the units in the secondary market and use the proceeds to buy contemporary jewellery at the time your children get married.
A gold ETF holds gold of 99.5% purity. Therefore, such ETFs provide a good hedge for increase in gold prices. Suppose, jewellery prices are higher at the time you buy them because the spot price of gold has increased. Your gold ETF will generate corresponding gains to significantly compensate the increase in the prices.
Household investment
Two, most individuals are comfortable buying gold as it is considered a traditional form of household investment. True, typical practice has been to buy physical gold. Modern-day living, however, calls for financial gold. Why? Your professional work may require you to relocate from one city to another or even a different country. Financial gold is operationally efficient, as the investment is easily portable.
And three, gold can be a good investment if you are worried that geopolitical tensions around the world could affect your portfolio. The statement ‘flight to quality’ is typically mentioned in relation to gold investments. This means when market participants are nervous about financial assets such as equity and bonds because of a world crisis, gold is the preferred investment. That said, note gold is not necessarily a good hedge for general inflation. Neither are gold prices stable.
Conclusion
You need not be overly concerned about choice of a gold ETF.
Given that all gold ETFs hold the same underlying asset (gold), their returns are similar. It is best you choose an ETF that is actively traded in the secondary market. You should setup a systematic investment plan on a gold ETF if your objective is to eventually buy physical gold.
(The author offers training programmes for individuals to manage their personal investments)
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