Buying gold…Investment or not???

One of my closest friends spoke very excitedly about how her ‘investment’ in gold jewellery is appreciating. She bought a pair of bangles in November 2005 for Rs 14 K and now the same weight of gold costs Rs. 22 K. She thinks that she has ‘earned’ a return of 57.1 %.

This certainly looks like a wonderful return. Besides gold will never go out of value. So why do I still not look at gold as an investment? The reason is: if she needs money, is she going to sell her bangles? These are bangles that she wears every single day, not some unseen pieces lying in a bank locker. I really doubt that even if the price of gold sky rockets they will be sold. There is an emotional barrier towards selling gold jewellery. It is the last resort for any individual or family. Investments are not about emotional attachment. You simply reclaim them for practical reasons.

Secondly, even if she decides to sell the bangles, whom will she sell them to? Banks are not authorized to buy back gold, neither are any financial institutions. I very much doubt that the branded jewellery stores buy gold this way. So she will have to take them to local jewellery shops. The less said about those the better. I doubt they will give the 22K.

So if at all one wants to invest in gold, it’s better to buy some gold funds or some other such instruments which can be redeemed as pure investments and nothing more.