For the love of Gold

Gold has always fascinated men and women alike since ancient times. A famous bhakti kavi said :

“ Kanak Kanak te so gunee, madakta adhikay,

Ek khay boray jug, ek paye boray jug”

Here Kanak refers to Gold and Opium. And the poet says that Gold is 100 times more intoxicating than Opium, as opium will make you intoxicated once you eat it but Gold will make you intoxicated just by getting it. Thus making it more potent than opium.

Indeed history is witness that man has crossed seas and oceans in search of new sources of gold and even the most remote civilizations will have a fascination for gold. Peter Bernstein in his wonderful book The Power of Gold describes man’s fascination for Gold.

So many names are derived from gold some common in India are:

Goldy, Sonu, Sonal, Sonia, Kanak, Swarna,Kanchan etc. Of these Sonia is actually popular even in western societies and Goldy though an English word is more popular amongst north Indian Punjabi families.

I think more than anything else what binds India from Kashmir to Kanyakumari is our obsession with all things golden. Can you imagine any Indian bride without customary golden ornaments?

But let me get back to why I started writing this article. Gold has always been stored by women in form of Jewelry. So it served dual purpose of an ornament as well as store house of wealth. Since most families in India earlier days did not give any share in wealth to women gold was their only security as the ornaments belonged to women. We have seen so many Hindi movies where the lady of the house will be saving the family from some misfortune by either selling or mortgaging her jewels. So gold was the last resort for a family in misfortune. Indeed in my own family I know of a relative whose business was saved by his wife’s jewels since he could not get a loan from a bank and he did not wanted help from any body else. Needless to say once he regained his wealth the lady got more than double of what she had earlier. Today she has more say in the family and in the business with her trump card “It was my jewels that saved your business”.

But there are a few problems with gold from an investment point of view:

Since a small amount of gold has a lot of value it also leads to lot of problems also. In so many Indian cities chain snatching by biker gangs is common. Once stolen gold can easily be melted into and there is no proof of earlier existence.

The other problem is when you buy gold in jewellery the goldsmith will charge you for full purity of 24 or 22 carat and will typically give you impure gold. This is a major problem in India with most jewelers except for some big names like Gitanjali, and Tanishq.

The goldsmith will also charge you for making charges which is the cost of making jewellery.

The other problem with gold is that it is an asset which does not generate any income. Actually you have to spend money on its safety.

So when gold exchange traded funds came to India, I was very happy as it makes buying and selling gold very easy. Benchmark was the first company to come up with Gold ETF in India. A gold ETF is a mutual fund which invests in physical gold to the amount equal to your investments and keeps it in its safe custody. It charges a small annual expense for the same which is regulated by SEBI.

So the advantage is that you pay only for the gold, and not for any making charges. As when you go and sell your jewelry the goldsmith will pay you only for the gold and the money you paid for making and design has gone down the drain.

You can sell the ETF like any other mutual fund and the money will be credited in your account. So one need not worry about storage, theft and other risks associated with physical gold.

The Mrs. May not be very happy with this approach as she can not wear the ETF account statement in place of her bangles.

Now since my wife is an active partner in my investments I had to convince her to a great extent that hence forth we will buy only ETFs whenever we want to buy gold for our portfolio. For a few months it worked fine but on her birthday none of my logic worked and since this year her birthday came close to Dhanteras festival I had to bow down to her request and we went to buy some jewelry for her.

I must say that all your financial intelligence is of no use if the lady of the house wants to buy jewellery instead of ETF. Well I don’t blame her the desire to own gold is so deep seated in Indian women that it will not go away just because some companies have launched Gold ETFs in the market.

In the end we have reached this compromise.

She is free to buy Gold jewelry on her birthday, our marriage anniversary and on Valentines Day. We will buy gold coins on Dhanteras the festival of gold, when families in India buy gold coins. For all other occasions whenever we will have a desire to buy gold we will buy Gold Exchange traded funds.

I think this is a good middle path keeps the lady of house in good humor and the personal finance worm in me too satisfied. J

Happy investing, thanks for reading, do leave a comment.