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Gold: What you must know this Diwali

October 14, 2009 12:22 IST
You can feel it, touch it, wear it, admire it... but are you familiar with what makes gold so special and different. This festive season we want to share with you a quick primer on gold so that you can learn more about why it has captured the imagination of royalty, investors and households for 1000s of years. And, if you are in the market to buy some gold this holiday season, it is even more important that you spend the next 2 minutes reading this simple guide.

Important characteristics of gold

  • Precious metal because of limited supply: It is obvious, gold is a precious metal, known for its 'glittering' qualities. What is less known is that its precious not only because of its superficial quality, but also its scarce nature gives it a lot of intrinsic worth as well. There are only limited amounts of know reserves of gold in the world, and this is one of the things that drives its price.
  • Store of value: Because the supply of gold is finite, gold is seen as a store of value. For this reason, many consider it the best protection against inflation. History has shown that the value of paper money goes down over time, and for this reason they invest in gold because more money is needed to buy the same amount of gold.
  • Safety: ¬†Whenever there is an international geopolitical or economic crisis, gold will likely shoot up in value immediately. This is because at uncertain times, when economies slow down or stock markets are correcting, gold is seen as a safe and secure asset to hold.
  • Lack of income: Unlike other assets, gold does not generate any income. Those who argue against investing in gold, believe that it is a useless investment because unlike stocks or bonds or fixed deposits, it does not generate any dividends or interest income.
  • Storage and purity: Unlike paper assets like stocks or bonds, gold has storage costs associated with it. Paper assets held in the form of certificates or property deeds are registered in the investor's name, and cannot be misappropriated. On the other hand, physical gold can be stolen. Additionally, when one buys the physical metal, one must be sure that it is pure. Many jewellers might be able to get away with less pure gold than what they charge you for.
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