All that Glitters is GOLD

Gold has been a precious metal for ages and has provided maximum protection to investors globally in times of economic uncertainty. Gold has been a good hedge against inflation and it has proved to be the best asset class for providing diversification in investor’s portfolios due to its negative correlation with other asset classes like Equities and Bonds. Gold has been used for different purposes like investments, jewellery, and reserves. On a long-term basis of more than 20 years from 2005 to 2025 gold has been able to deliver more than average annualised returns of 11.20%. In good times and bad times, gold has been able to keep a steady pace of growth with limited downside, making it a much better class to invest in. The various benefits it provides are explained point-wise.

1. Investments 

Gold has provided the best-in-class returns based on the risk-adjusted returns among other asset classes. The risk-adjusted returns of gold for the last 20 years average annualised returns have been 11,20% with approx volatility of 15-20% and a Sharpe ratio of 0.4 to 0.5. Equity as an asset class has delivered 12-13% returns with volatility of 20-25% and a Sharpe ratio of 0.5 to 0.6, Bonds have delivered 6-7% annualised returns with volatility of 3-5% and a Sharpe ratio of 1-1.20. Not only Gold has been a good hedge against inflation, but it has also delivered double-digit returns on a longer-term horizon. This makes it a preferred choice of investment. In India, the yellow metal has been a preferred option in the form of jewellery and as of April 2025, Indian households are estimated to hold approximately 25,000 tonnes of gold. The wealth of the Indian household keeps on compounding with getting too much into the nitty gritty and the mathematics calculations and spreadsheet workouts.

2. Diversification 

As Gold has a negative correlation with other asset classes like Equity and Bonds, it proves to be the best diversification tool in an investment portfolio. For long Investors have been investing in Gold and making part of the portfolio to sail smoothly in times of uncertainty and economic meltdown. During 2008, the subprime crisis as well as in times Covid 19 or during the Russia-Ukraine war and even now during the Trump Tariff which is impacting more than 150 nations, where there was and now is too much uncertainty in the global economy, investors always have turned towards Gold. Gold has proven to be the safest heaven for investment during times. Hence allocating and diversifying investment towards Gold has been an ultimate investor’s choice wherein no other asset class stands out the way Gold does.

3. Liquidity

Gold is considered to be just like cash. This is the liquidity it holds. It can be encashed anytime which can be online through markets or OTC (Over the Counter). The overall holdings as of April 2025 are mentioned below

Central Banks

• Total Holdings: Approximately 37,755 metric tons​

Top Holders:

• United States: 8,133.5 tons​

• Germany: 3,351.5 tons

• Italy: 2,451.8 tons​ 

• France: 2,437.0 tons​

• Russia: 2,332.7 tons

• China: 2,279.6 tons​

• India: 765 tons

• European Central Bank: 506.5 tons​

• International Monetary Fund (IMF): 2,814.0 tons

Physically Backed Gold ETFs

• Total Holdings: Approximately 3,445.3 metric tons

Private Investors

• India: Households are estimated to hold about 25,000 metric tons of gold, reflecting the country's cultural and economic affinity for the metal.
  

It is more liquid than major financial markets globally and in India, as of April 2025, the average daily trading volume for gold ETFs on the National Stock Exchange (NSE) of India is approximately ₹136 crore. Among these, the Nippon India ETF Gold BeES stands out with a daily average volume of ₹67 crore, making it the most actively traded gold ETF in the country.

So, Gold has been an asset class which provides good returns, is a good diversification option and has been highly liquid. Investing in gold is not only a smart decision, but it is also a good hedge against inflation and creates wealth for investors in the long term.

Different Ways to Invest in Gold

Now that we have understood Gold, as an asset class. Let’s now understand different ways to invest in Gold.

1. Physical Gold - The old and traditional way of buying and investing in gold is to buy over the counter through a jewellery shop. Now this gold can be in the form of Jewellery or Gold bars or Coins. In India on every auspicious occasion, people tend to buy gold to provide them with prosperity and an abundance of wealth. Also, the only problem with physical gold is its storage. To hold these gold one has to put it in bank lockers or else have to create a locker at home which increases the cost of holding Gold. Also, the risk of theft is always there. 

2. GOLD ETF - Gold ETFs (Exchange-Traded Funds) are investment instruments that allow you to invest in gold without physically owning it. They track the price of gold and trade on stock exchanges just like regular shares. The other easy way of investing in gold is to buy Gold ETF instead of physical gold. The price of the Gold ETF will match the domestic price of the gold and can be bought and sold in a fraction of a second in the secondary market. To buy Gold ETF one should have a Demat and trading account. In Gold ETF, the units are held electronically in Demat form and can be bought and sold through trading accounts held with any broker. The advantages of investing in gold through Gold ETF are you don't have the risk of losing and zero threat of theft. Also, one is least bothered about the purity of gold as Gold ETF will invest in gold with 99.5% purity which is the standard. 

3. GOLD Mutual Fund: When investing in a Gold ETF Demat account is compulsory, while investing in a Gold Mutual Fund one need not compulsorily have a Demat account. It can be held online as well as offline. Gold mutual funds will predominantly invest in gold ETFs and investors are provided units for the investments they make. The units can be redeemed anytime during market hours and the proceeds are credited to the investor's bank account linked to the investment folios as per the prevailing market rates less exit loads if any. Also, the advantage here is investors need not worry about the theft and purity of gold. This makes investing in gold through mutual funds a preferable option among retail investors.

4. Digital Gold - Many fintech apps now provide this option of investing in gold through their mobile and web apps with Digital Gold investing options. One can buy digital gold through their app and the investment in digital gold through these apps starts with as less as ₹ 1. The gold is held in vaults. Many fintech companies provide the option of buying physical gold once the investor has achieved the minimum criteria to buy physical gold. These are offered by fintech companies like Jar, Gullak, Paytm and many others.

   
   

Taxation

Physical Gold & Digital Gold

• Short-Term Capital Gains (STCG):

  • If gold is sold within 24 months of purchase, gains are taxed as per the individual's applicable income tax slab.​

• Long-Term Capital Gains (LTCG):

  • For gold held beyond 24 months, gains are taxed at a flat rate of 12.5%, without the benefit of indexation

Gold is generally considered an emotional investment for Indian Investors. You will hardly find any household selling their gold investments especially if it is in physical form. And the average holding of physical gold is more than decades.  In India, Gold has been the real wealth creator for many households for the past many years we have seen the financialisation of assets but the love for Gold in the Indian community is far from over. In November 2024 on the auspicious occasion of Dhanteras, Rajkot city in Gujarat had sold 700kg of gold worth ₹ 739 crore, in a single day. This speaks a lot about the love for gold. Now it's time to see whether Gold in future, performs the way it has performed in the past and whether will it be able to generate double-digit returns. Only time can reveal the outcome. Until then Happy Investing.