Electronic Gold, An Attractive Investment Haven

In response to my last column on E-Gold in DNA, many readers requested me to throw some light as to how the electronic form of gold compares with physical gold (the gold we purchase from jeweler as coins or jewellery). So for those who tuned in late, with Gold ETF and e-Gold it has become very easy to acquire and accumulate gold in small quantity over a period at very competitive prices. This provides the option of accumulating gold electronically, unlike earlier when people generally used to purchase gold as jewellery or at the most as coins from the banks.

So what are the benefits of e-Gold & ETF and how it can be purchased?

Benefits of Electronic Form of Gold Lower Cost: The purchase of gold in physical form is relatively costlier as compared to electronic form of gold particularly for smaller quantities. If you purchase jewellery from the jeweler, you pay making charges. Though your jeweler undertakes to buy back the gold jewelry from you, he invariably deducts the making charges. Thus, effectively reducing your appreciation in the gold in case the prices have gone up.

In case you purchase the gold bars from bank, even for small quantities, this mode of gold purchase is costlier, as you pay a premium ranging between 10%-15% over the market price of the gold. Moreover the banks do not offer to repurchase the gold coins, thus you may not get the fair price of the gold coins, if sold outside. However the difference between buys and sell quote of Gold ETF and E-gold is very small and it eliminates the middleman’s margin and ensures a good return to the investor.

Transparency and uniformity of prices: Since the purchase and sale of Gold ETF and e-Gold is done through screen based prices, the prices are same across the country, thus making it more transparent and uniform as against the prices of gold jewelry which varies from jeweler to jeweler. Even in case of standard products like gold coins, the premium charged by various banks over the prevailing gold prices differs from bank to bank.
Convenient to buy and sell: The electronic form of gold, be it Gold ETF or e-Gold can be purchased from the comfort of your home by making a phone call or through Online platform. However for buying physical gold you have to visit either your bank or jeweler. Likewise it is very easy and convenient to sell the electronic gold in case you need money or want to liquidate your holding.

Easy assets allocation and rebalancing: With e-Gold & ETF, purchasing paper gold has become easy and convenient people have started allocating some portion of their investment in gold. Investment expert advise an allocation of 10% -20% for bullion. As you need to rebalance your portfolio periodically to take the full benefit of asset allocation concept, to effect this rebalancing of your portfolio is very easy and convenient with paper gold as compared to physical gold.

Savings on storage and insurance cost: Since gold is not in your physical custody, you do not have to incur expenses on storage and insurance of gold unlike in case of jewellery where you have to bear locker rent and insurance. Then there are purity concerns with the gold jewellery purchased from jeweler. Few readers have also expressed their concern about existence of physical gold with mutual funds issuing the gold ETF or with National Spot Exchange Ltd. in case of E-Gold.

The Gold ETFs are backed by gold which is kept with custodian of repute. The SEBI very recently has made it mandatory for the auditors of the Gold ETF schemes to physically verify the gold, this gives a reasonable assurance to the investors that the Gold ETF are backed by physical gold.

Mover over in case of E-Gold, the gold is kept with independent vaulting agency of International repute. The business of National Spot Exchange Ltd. is regulated by Forward Markets Commission – a regulatory authority which is overseen by the Ministry of Consumer Affairs, Food and Public Distribution, Govt. of India. The physical gold kept with the vaulting agency is periodically audited by the auditors of National Spot Exchange.

Like gold ETF and other securities record keeping of the ownership of the e-Gold units (ICIN) is done M/s Karvy Consultants Ltd. -which is the R & T (Register & Transfer Agent) for National Spot Exchange Ltd. Based on my interaction with the officials at National Spot Exchange and Brinks Arya (the designated vault) I understand that the gold kept with the vault is fully insured.

At any given point of time the e-Gold units are fully backed by equal quantity of gold kept with its vaulting agency. Thus this form of gold also gives assurance to the investors about existence of physical gold against the units purchased by them. In case of e-Gold you have the option to convert the units into gold at any time which gives additional assurance.

I hope the benefits of buying Electronic gold are clear particularly for the purpose of investment.
Though my advice on buying gold in electronic format may not go down well with my lady readers, as owning a piece of jewellery is a highly satisfying experience for them.

But ladies, it’s high time you change your way of thinking and go of e-Gold or Gold ETF to derive another level of satisfaction.

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