Women's Weekly: The Midas touch - Views on News from Equitymaster

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Women's Weekly: The Midas touch

Oct 21, 2009

Do not go overboard with goldWe all know how much King Midas loved gold. As a boon, he wanted all that he touched to turn to gold. And that's exactly what happened. Everything he touched turned to gold- his bed, his chair , an apple, a glass....

The way the gold prices are rising today, many of us similarly end up wishing that we had a Midas touch too. That's why whenever we get a chance, as soon as our meager and sometimes our not so meager budget allows us, we quickly buy gold.

There are also occasions a plenty - engagement, marriage, marriage anniversary, birth of a child, his birthday and so on. So every time we buy gold we tell ourselves that we are making an investment.

With the way gold prices are rising, many people believe that investing in gold may hold the key to a richer future. We however, beg to differ.

In this issue of women's weekly, we will give you at least three reasons why gold should not be your only form of investment.

The big bling theory

Ornaments are not really an investment. Remember, in our earlier issue we had said that how much ever we may hate to admit it but, bags and shoes are not really an investment. The same is the case with gold ornaments too.

Gold in its pure form may be an investment. However, when you buy gold ornaments, they are not available in their purest form.

Just as stilettos may not be good for our back and feet, but they do wonders for our posture and looks, similarly with gold too, addition of copper to gold may lead to a huge fall in its value, but it does wonders for the design and look of the ornament.

Making charges levied on the ornaments further increase the price of the jewelry, but not its intrinsic value. Thus while 10 gm gold in its pure form (24 karat) would cost you say Rs 16,000, a designer gold bangle of 5 grams (22karat) will cost you nothing less than 20,000!

So, if you want to buy gold as an investment, buy it in its purest form.

The Midas mistake

King Midas thought that once he had gold in plenty, there would be no trouble in his paradise. So everything that he could lay his eyes on was transformed into gold. However, he soon discovered that gold was not everything in life.

Some of us make the same mistake that Midas did. We invest all our money in gold. While gold prices may be rising steadily over years, that does not mean that there is a guarantee that it is a fail safe investment.

Remember a few months ago when gold prices crashed to Rs 8,000? Many investors who had bought gold at Rs 12,000 spent a lot of sleepless nights after that.

As we have said time and again, you should allocate money to various assets keep in mind your short term and long term needs. A smart asset allocation plan will ensure that there is some money in all asset classes including gold, property, stocks and deposits.

Banks and gold

Many feel that buying gold from banks is the best and most trustworthy form of investment. However, banks too charge a percentage of sales/ commission as transaction cost (even higher than 10% at times!). This means that the gold which would otherwise cost you Rs 16,000 or so, will cost you a lot more if you buy from a bank.

If you still want a reliable way of investing in gold, maybe a gold mutual fund would be a good option.

So buy gold. Gift it to your loved ones or worship it during Laxmi Pujan or simply flaunt it or even invest in it. But remember, as King Midas would always want us to remember, do not go overboard with it.

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