Should you buy Gold

Keep wondering why there is such a strong demand for ornamental gold. Rationally thinking, gold ornaments are a clear bad investment … here are a few reasons why.

  • You lose 5-12% in wastages and making charges.
  • Add other taxes, duties etc and you are already 10-15% behind you costs.
  • You lose some value while liquidating, leave alone the costs of safe guarding these!
  • Gold unlike share or bonds does not give any dividends or interest, so only way up (or down) is through capital appreciation.

Clearly this purchase seems more sentimental or emotional rather than any rational investment decision. However, how can collective wisdom of millennia of people be wrong? Gold has been and will be precious and sought after for thousands of years to come, isn’t it?

Well, you have to give one thing to gold – it is a preserver of value. Over larger period of times, gold on an average buys similar level of things. In short, if not anything, it preserves the value due to inflation. In other words, you can buy similar things with a gram of gold in 1970 as you can in 2012. Forget the real gains above inflation, what is a time tested reasonable assumption is that gold at least keeps up  with inflation.

The question is if you are building an inflation hedge with gold, are you willing to lose 10-15% on ornament charges?