Throughout history, gold has been viewed as a special and valuable commodity. Nowadays, owning gold can act as a hedge against both inflation and deflation, as well as a good portfolio diversifier. As a global store of value, gold can also provide financial cover during geopolitical and macroeconomic uncertainty. Investing in gold is generally considered to be a hedge against inflation, since gold retains its value while the purchasing power of fiat currencies erodes.
However, it becomes less attractive when interest rates rise, as investors don't receive interest or dividend payments for holding gold. Some consider gold to be the best investment insurance policy. Given the difficulties associated with physical gold as an investment, it's best for an investor to look for other options, such as paper gold. While physical gold was formerly considered a great form of investment, this is no longer the case for several reasons.
Analysts prefer physically backed ETFs or ETFs, such as iShares Physical Gold, rather than leveraged products that rely on derivatives to boost profitability, adding additional costs and complexity. Critics cite the lack of income that can be obtained from physical gold or ETFs, since it does not generate dividends, and the price can be volatile in the short or medium term, making it difficult to know whether to buy at the top or bottom of the market. Unlike many financial instruments that offer benefits or dividends, physical gold doesn't offer benefits while it's with you. Gold jewelry, coins and ingots are ways in which investors can transmit their wealth as an inheritance and are alternatives to holding gold stocks.
Gold values represent physical gold, but you don't have the right to exchange them for real metal. In the past decade, in rupees, with a compound annual growth rate (CAGR) of 5.7 percent, physical gold yielded much lower returns than Nifty's 15.5 percent. Compared to paper stocks, physical gold gives investors the ability to physically hold the investment over which they have full control at all times. Physical gold serves to protect your purchasing power or, as mentioned above, to ensure your purchasing power.
Mrin Agarwal, financial educator and director of Finsafe India, a financial education company, says that buying physical gold “is much more expensive, since it involves a lot of overhead costs, such as manufacturing or waste charges, which usually represent between 25 and 30 percent of the cost. You can buy physical gold at government mints, such as the Royal Mint in the United Kingdom, at precious metals dealers and at jewelry stores. I like to think of physical gold and silver as financial insurance against inflation, which provides the ability to “set a specific rate”.