It’s a universal truth that Physical Gold act as an alternate currency. Investment Advisers never suggest you holding physical gold because of various reasons. Some of the reasons are security, purity, making charges if it is jewelry etc. I am not considering returns at this moment. I personally believe that there is 10%-15% more downside from current levels due to world’s economic condition. Besides alternate currency, Gold also act as a hedge against inflation. Experts always suggest investing through Gold ETF’s. Recently launched Gold Monetization Scheme generated lot of interest among investors. It offers interest of 2.5%. Today we have a lot of options to invest in non-physical gold.
The three incidences in recent past forced me to think why an individual can consider holding Physical Gold. Though all three are highly unlikely scenarios but people went through the same also thought the same in past i.e. it is highly unlikely. Let me share
Physical Gold – Why you should hold it for Emergency Situation
(a) Economic Crisis: Last year i was doing some study on the economic crisis in Greece. I went through numerous blogs and the experience of people in Greece. They were out of money and banks were closed for weeks. Now you must be wondering, how they survived? The answer is Physical Gold saved their day. As i mentioned that Gold also act as an alternate currency and can be traded anywhere in the world. In the case of an economic meltdown, the currency of country might be reduced to junk. Therefore, a cash in hand might not worth even a penny. No one will buy property or stock as these two assets also crash in such conditions. In this unfortunate situation, the only asset that can rescue you from the crisis is Physical Gold.
Quite interestingly after the Greece crisis, some of the European countries observed strong demand for Gold Coins. The crux of the matter is that the world is a global village and interlinked. Sometimes the impact on the economy is from unexpected quarters. Currently, the collapse of crude oil price is the biggest threat to some of the big economies.
(b) Natural Disaster: Recently, Chennai was submerged under water due to heavy rainfall for 2-3 weeks. Some of my readers from Chennai explained how they survived. No prizes for guessing, the physical gold holding helped them to survive. The banks and ATM’s were closed. The house was submerged in water. There was NO Cash at home due to the wide reach of ATM’s. One of the readers told that when water level started increasing, the only thing they carried was physical gold. For the benefit of readers, max consumption of physical gold in India is in the Southern States. In such situations, Gold comes handy to survive else we could not have survived, told another reader from Chennai.
(c) Civil Unrest: When i was a kid, my grandparents used to tell me how they survived civil unrest. They told that only thing that they carried along with them was GOLD. At that time banks were not there therefore, Gold was most favorite asset. Because of Gold they survived the crisis. Today we are living in a civilized society but civil unrest is still common in small towns and cities. During such emergency situations, Physical Gold is the only alternate currency that can help in distress situations.
One of my relatives faced civil unrest in their city last year. When i met them they explained how they survived. At that time, i realized that what my grandparents used to tell me was correct. Maybe because of past experiences, people still think GOLD is a safe heaven. They are not concerned about the movement of gold rate. Probably, the thought of gold being a best friend during emergency situation keep them invested in physical gold.
On the other hand, there are some other instances that also force us to rethink our stand on this topic. While writing this post, i remembered a discussion with one of the readers from Jajpur in 2011. It is a small town in Orissa. I recalled he told me that all his savings were deposited in the local co-operative bank. The bank invested money in stock market and went bust in 2008 after the stock market meltdown. His savings of 22 lakh were stuck. Under deposit insurance and credit guarantee corporation, all deposits in banks are insured up to a max 1 lac. Though, in India, there is not a single instance when depositors lost money as RBI is very strong. The point is that it was difficult for him to survive during the interim period as there was NO regular source of income.
In the case of my reader, he received 1 lac after 2 months under insurance and was able to access balance amount when the cooperative bank was merged with some other bank. He said that survival was almost impossible during those two months. I was wondering if he could have invested in physical gold then the situation could have been different. Anyways, i just thought of sharing this incidence.
Should i hold Physical Gold?
As an investor or from personal finance planning, i am always opposed to this idea. Gold is anyways non-productive asset. On the other hand, when i went through the experience of others, i feel YES. I tried to put myself in situations mentioned above. I thought how will i take care of my family if god forbids i face any such situation. When i shared the idea with my wife, she said the same thing that these are highly unlikely scenarios.
As i mentioned in my post on Asset Allocation that i am planning an investment in Gold but waiting for the right price. After soul searching, i have decided that i will invest 50% in Gold ETF’s and balance in Physical Gold. Under ideal asset allocation, experts suggest that max gold holding should not exceed 15%. Therefore, if you are bothered about emergency situations then you can break this 15% into two parts. In short, 7.5% of total assets can be invested in Physical Gold and rest 7.5% in Gold ETF’s. Some people asked my opinion on Gold Bonds compared to Gold ETF’s. Gold Bonds are more suitable for long-term investors. Secondly, they have a lock in period and experts have raised liquidity concerns. Lastly, if you are buying physical gold for the emergency situation then it should be easily accessible. There is no point buying it and keeping it in the locker. The best way is to buy a Gold Coin or Gold Ginni from jewelers. Reason being, you can always sell at market rate and there are NO making charges.
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It’s a traditional system to hold physical gold when currency cirulation was in terms of gold and silver coins and equally helpful now particularly for middle class families.
Hello Nitin ji. Just I want to add few of Banks like Manapurram Gold, Muthut Finance etc., recently expanded their business by giving loans to their customers against mortgaging Physical Gold. I observed that it is helping more middle and below middle class people for their needs like marriages, religious festivals, formers to buy Seeds and fartilizers etc..