Gold - How much money do I actually make?

      What you see is not what you get!                   

                 In the last blog, we showed that even though Gold has given better returns in recent times, the long term returns of Gold are still not the best among all asset classes. In that the returns compared were the returns of pure gold vs other Asset class. In this blog, let us understand the difference between the actual returns we make from Gold vs Paper returns based on Gold Prices we see.

                        Let us first bring to your notice that our families usually buy gold as Jewelry and not as gold coins or bars. When we buy Gold as Jewelry, there are costs that get added to it, making / wastage charges + Taxes that we have to pay. A friend of mine recently bought a ring and came to me totally surprised that a gram of Gold costs " Rs 5000" !. Back then Gold was selling @ Rs 4200/gram. I was surprised too. It turned out that the Jeweler charged him 20% as sundry charges & taxes, taking the cost to Rs 5000/gm. This has happened in the year 2020, imagine how gold might have been sold in the Year 2000 (there was no appropriate regulations, no hallmark impression, wastage calculations/charges and many more). Anyways the point we want to drive is, each time we pay Rs 1000, ideally we are getting approx Rs 800 worth Gold only. 

        Now add to this the fact that when we sell the jewel or exchange it, there is again a wastage of about 3-4% deducted. That takes away almost 25% of total profits the Gold makes on paper. Let us now put the image from our last blog comparing the returns from Peak to Peak. 

Then take away 25% from the Gold returns. This leaves only 7.5% on the table for people like you and me who buy Gold mostly in the form of Jewel. 

Now you see there is a chasm between the Paper Profit and actual profit from gold and this one of the reason why we do not classify "Gold" as investment. One should always look @ Gold as hedge against inflation and as on choice during the asset allocation process.  

For financial planning and investment-related queries, write to us at dropletadvisory@gmail.com or call us at 9962399924 / 9551373455. 

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