Indians traditionally buy gold ornaments, coins, and bars during important festivals, mainly between August and November. Buying gold during festivals like Dhanteras is considered good luck. People also invest in the yellow metal through mutual funds (MFs), sovereign gold bonds (SGBs) and exchange-traded funds (ETFs) to create long-term wealth. With reports of the US Federal Reserve signalling a rate cut this month, many central banks globally may follow suit, which is often the case. In that scenario, will gold purchases be more profitable?

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Prithviraj Kothari, managing director of RiddiSiddhi Bullions Ltd (RSBL), says, “Gold can be a good investment ahead of a potential Federal Reserve rate cut and the festive season for several reasons. A Fed rate cut often weakens the US dollar and lowers bond yields, making gold, a non-yielding asset, more attractive to investors seeking stability. Historically, gold prices have risen in response to looser monetary policies, offering a hedge against inflation and currency fluctuations.

“In India, the festive season, particularly around Diwali, traditionally drives strong demand for gold. With the recent reduction in import duties and declining gold prices, the demand for gold is expected to rise, further supporting potential price increases. These factors make gold a favourable investment as a safe-haven and for festive season demand. However, it’s important to consider your investment goals and risk profile before deciding.”

Here are some advantages and disadvantages of buying gold products:

Digital Gold Products and Benefits

The digital gold space offers immense investment opportunities. One could invest in digital gold in small sums. Similarly, Gold ETFs provide liquidity for short- and medium-term investors without requiring them to pay sales, wealth, transaction, and value-added taxes. Gold mutual funds are also well-regulated; one can buy or sell them without a Demat trading account. There is also the gold futures contract, which offers short-selling opportunities without worrying about security and storage. Finally, sovereign gold bond (SGB) provides a fixed annual interest rate of 2.5 per cent and are low-risk and tax-free at maturity.

Disadvantages

Certain gold investments have disadvantages, too, including possible higher asset management charges for ETFs and MFs and long-term capital gains tax, which can eat into your profits. Gold MFs cannot be converted into physical gold and have annual fees. Gold futures contracts come with the risk of total loss due to market volatility. SGBs have low liquidity.

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Trade Momentum

The digital gold trade is gaining popularity due to its flexibility and convenience. It allows investors to enter the market with a small amount. Unlike physical gold, which may require store visits and bigger capital, SGBs, gold MFs and ETFs can be traded through websites and mobile apps, offering ease of transaction and flexibility to decide how much to invest. Information on gold products is also readily available online, making purchasing decisions easy for investors.

Gifting Gold

Nowadays, one can easily gift digital and physical gold products, such as gold MFs, ETFs, jewellery, etc., to their loved ones online. They could also gift physical gold vouchers, which can be redeemed through designated platforms. This convenience and flexibility in gold trade show that the market has evolved and matured enough to meet the needs of 21st-century consumers.