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Want to buy gold? Read on!

Last updated on: June 2, 2010 14:39 IST
Gold touched its new all time high of $1,244 per ounce recently. Existing investors must be wondering if they should sell and book profit.

As for the new investors, they must be thinking whether to invest in gold to gain from upside or should wait for a correction.

After consecutive 9 years of rise, will the 10th year be lustrous for this yellow metal? Should one hold/buy gold at this level?

Buying or selling gold is really difficult as one cannot arrive at an intrinsic value of gold. It is more about relative valuations.

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Want to buy gold? Read on!

Last updated on: June 2, 2010 14:39 IST

Here are some reasons which will help you take decisions. 

This in turn has favoured the dollar which has seen a rise. The euro countries are swapping a weaker currency for stronger dollars.  

While these are shorter duration swaps, on expiry of these swaps,  Fed will have to print more dollars.

This will deflate the dollars, thus leading to rise in values to hard assets, especially gold.

The value of money is bound to fall. This will in turn increase in the value of gold. Unlike dollars, gold does have a fixed supply. As a long term crisis hedge Gold is excellent.

However, as seen, dollar and gold both are rising, indicating the breakout of the inverse relationship between the metal and the US currency.

This indicates the loss of faith of investors in paper currency. In times of uncertainty, gold seems to be the only safest bet.

Want to buy gold? Read on!

Last updated on: June 2, 2010 14:39 IST

Even there is a dip -- due to constantly changing circumstances, it will not be steep.

Hence it is a good time to buy gold. Don't go overboard though, but do have an exposure to gold.

One can invest in gold directly, invest in a systematic investment plan (monthly purchases) to get the best price either by buying buying gold in physical form like jewellery , gold biscuits , gold bars or investing in gold ETFs.

For investors holding gold, continue to hold it as it is likely to go up further long term.

Taxes on selling gold

There are taxes to be paid at time of sale. Ornaments (made of silver, gold, platinum, precious metal and precious or semi-precious stones) whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel are treated as capital assets.

Long-term or short-term capital gains liability needs to be paid.

Want to buy gold? Read on!

Last updated on: June 2, 2010 14:39 IST

Physical form (gold bar/ coin/jewellery):

In the case of long-term capital gains, the indexed cost of acquisition is allowed as deduction.

The rate of taxation is 20 per cent. A capital loss can be carried forward for a maximum period of 8 years from the assessment year in which the loss was first incurred.

There is 1 per cent wealth tax also chargeable, however, since Gold doesn't fall under the purview of Gift Tax, there are no tax implications

Gold ETF: The Gold ETF comes under mutual fund.  It is taxed as per non equity mutual fund taxation rules.

There is no wealth tax charged on ETF. Investor has to pay taxes after redemption as per the tax laws applicable for non equity mutual fund. i.e: long term capital tax of 20 per cent if sold after a year.

Short term tax is 30 per cent. However, there is no wealth tax. But, if it is redeemed for physical gold the taxation rules will be similar to that of physical gold.


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