Gold is a valuable investment class, particularly during festivals like Dhanteras and Diwali. It is seen as a natural inflation hedge. In the event of a crisis, it is also regarded as a reserve currency. It is crucial that it has adequate liquidity because of the high volume of trading. Typically, the festive season sees an increase in demand for gold. In the nation, yellow metal has significant sentimental and cultural significance. Buying gold is said to be very lucky during the festive season. Therefore, before making any decisions, investors should understand the significance of liquidity in gold investments.
Liquidity In Gold Investments
Gold is an important investment class. It is considered a natural hedge to inflation. It is also treated as a reserve currency whenever there is a crisis. Since it is traded in large volumes, it is important that it should have enough liquidity. The more liquid an asset is, the easier and more efficient it is to turn it back into cash. However, when it comes to physical gold, especially in the form of jewellery, liquidity is restricted or comes at a cost which is less than the real value of the gold, said Gaurav Goel (Entrepreneur, SEBI registered Investment Advisor).
It is therefore advisable to invest in more liquid forms of gold where deductions are less and bid-ask spreads are minimal. Digital gold is a great option to have and is available in the form of ETFs, Mutual Funds and Sovereign Gold Bond Funds, he further added.
Importance of Liquidity In Gold Investments
Liquidity in gold investment is crucial as it determines how quickly and easily an investor can convert gold into cash without significantly affecting its price. High liquidity ensures that investors can enter or exit positions promptly, enabling them to respond to market fluctuations effectively. It also reduces the risk of holding assets that may become difficult to sell, as per S Ravi, Founder , Ravi Rajan & Co.
Furthermore, liquidity reflects market confidence and stability, making gold a more attractive option during economic uncertainty. Investors benefit from knowing they can quickly access their capital, making liquidity a key factor in the overall appeal and viability of gold investments, according to S Ravi.
Why Gold Has Always Been Considered Very Liquid?
As per Mr. Keyur Shah, CEO – Precious Metals Business, Muthoot Pappachan Group, liquidity in any investment is very important and it is one of the major factors that decide the acceptability of the asset class. Gold has always been considered very liquid because of its universal appeal & acceptability across geographies and amongst almost all types of consumers. It can be converted to money anytime and almost instantly in most cases.
Physical Gold can be sold in the market and Gold-backed instruments can be sold on exchanges or via online portals. Hence investors need not worry about liquidity as far as Gold is concerned as compared to most other asset classes. For Gold investment, the liquidation can be realised instantly or as per the applicable bank transfer or online transfer norms, said Keyur Shah.
How Gold Has Always Been A Preferred Asset For Preserving Wealth?
Gold has always been a preferred asset for preserving wealth, and its liquidity plays a pivotal role in this preference. Below are the key reasons as per Aksha Kamboj, VP of India Bullion & Jewellers Association (IBJA) and Executive Chairperson of Aspect Global Ventures Pvt. Ltd.
Immediate Convertibility: Gold is universally recognized and can be easily converted into cash. Whether held as physical bullion, coins, or digital gold, it can be quickly liquidated to meet urgent financial needs. This immediate access to funds is a significant advantage, especially in volatile or uncertain markets where other assets may take longer to sell or may lose value.
Low Transaction Costs: Unlike real estate or other long-term investments, gold typically has lower transaction costs when buying or selling. The process of converting gold to cash is straightforward and incurs fewer fees, which further enhances its liquidity. For businesses, this feature can provide a critical buffer during periods of financial stress or when opportunities arise that require quick capital infusion.
Market Depth: Gold’s global demand ensures a deep, liquid market, allowing investors to sell at fair prices almost anywhere in the world. This is particularly important for large-scale bullion holdings, as selling substantial quantities of gold will not significantly impact its market price.
Conclusion
In conclusion, the liquidity of gold investments offers financial flexibility and security, making it an indispensable part of a diversified portfolio, especially during periods of market uncertainty or economic downturns.
Story first published: Sunday, October 27, 2024, 13:13 [IST]
fbq('track', 'PageView');
Original news source Credit: www.goodreturns.in
You must be logged in to post a comment Login