There is no right time to invest in gold. You can invest any time and every time depending on your investment horizon. However, a lot depends on religious connotations too.
For example, the Hindus and Jains reserve most of their gold investments to Akshaya Tritiya, the third day of the Vaisakha month, as per the Hindu calendar. This day that falls in April or May is deemed important for Hindus looking to start new investments or engage in new business activity, thus, explaining its significance.
Many Hindu families mark this auspicious occasion by buying some gold and keeping it in their homes. These may be simple gold coins or gold bullion or in the form of gold jewellery. The idea is to bring in some quantity of this yellow metal as a mark of ringing in the day’s propitiousness.
The propensity to buy gold has gone up in the past few months as the price of this yellow metal rode on macroeconomic factors like the recent Fed rate hikes or the anticipation of further global slowdown owing to increased geopolitical uncertainties and subsequent fall in the Dollar index and US bond yields.
Gold returns over the past decade have been close to 11 per cent CAGR. However, this time the rally has been different as gold tends to outperform its peers during sudden events like a war or pandemic. Though the rate cycle seems to be at ease for now, there is a strong likelihood of a rate hike cycle change. Also giving a boost to the overall demand is the Central Bank gold buying spree which is rising at a consistent pace. Experts expect a good and sustained jump in gold prices in the near future.
Though none can ignore the allure of gold, Motilal Oswal Finacial Services in its report informs, “Fundamentals for silver (precious + industrial metal) looks better and could outperform gold over a medium-term period. We continue to maintain a positive stance for both the metals and recommend buying on dips, with a target towards ₹63,000 for gold and ₹85,000 for silver on the domestic front and $2100 for gold and $29 for silver on Comex.”
There are several platforms for market participants to invest in gold based on their risk profile. One may invest through gold exchange-traded funds (ETFs) or gold mutual funds or through sovereign gold bonds (SGBs). The recent taxation rules have pushed more investors towards putting money in SGBs as opposed to gold ETFs.
Investing in gold ETFs is like buying gold in an electronic and dematerialized format, thus, ensuring a hassle-free purchase.
When you buy physical gold, you must pay GST, sales tax, wealth tax, and other taxes, as well as a surcharge. There is no such tax when purchasing gold ETFs. When it comes to taxation of gold ETFs in India, all your income from the sale of these ETFs, irrespective of your investment horizon, will be treated as short-term capital gains and taxation will be as per your applicable tax slab.
Comparatively, there is no tax component on withdrawal of the lump sum amount on maturity of the SGBs. The annual interest paid on SGBs of 2.5 per cent is however taxable
When physical gold is sold after three years, it will continue to benefit from the 20 per cent LTCG tax with indexation, thus, creating a tax arbitrage between physical gold and gold ETFs.
Amidst so much volatility in the market and the dual benefits of indexation and LTCG taxation waved off from debt funds, investors may consider putting their money in gold. However, the route to gold investments can be different for each, depending on each one’s priorities and understanding of how investments work.