A Comprehensive Guide to Digital Gold Investments: Strategies, Platforms, and Best Apps
What is Digital Gold?
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Digital gold vs physical gold
Contrary to popular belief, digital gold is actually backed by actual physical gold. The only difference being that with digital gold, the asset owner does not get the delivery of the physical gold, rather a digital asset meaning that the investor will enjoy the risk and returns of the actual gold of equivalent value without needing to trade the commodity physically.
Physical gold on the other hand as the name suggests is the physical form of the metal, which can be purchased and sold in the secondary market in various forms such as bullion, ornaments, utensils, among many others. The primary point of differentiation being that if an individual makes a decision to purchase physical gold, it can be utilized for a host of purposes apart from the returns on investment like using it socially in the form of jewellery, gifts, etc. It is a great asset for someone who wants to begin investing in precious metals, and wants high liquidity and stable returns.
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How it’s backed by physical gold
Just like many asset backed securities, even digital gold is backed by actual physical gold. Meaning, the physical gold acts as an underlying asset against which digital gold is traded as an investment asset and one of the most secure investments available for all classes of investors. It negates the need for physical delivery of the commodity, and can be traded freely digitally without the effort of finding another buyer who’d be willing to take physical possession of the asset. It is a great way of investing for the investors with a motive to only invest in gold for the risk and returns benefit it exhibits rather than the desire to use the physical form of the metal.
Why Invest in Digital Gold?
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Hedge against inflation
Gold is an excellent long term investment. Historically gold as an asset class has produced stable returns with a low risk profile compared to some other assets that have produced similar returns. This essentially means that money invested in gold has grown steadily over the long term, thus negating the effect of inflation on your investment. If an investor is considering to start investing in gold, they can opt to invest in digital gold instead, as it exhibits similar quality of being a hedge against inflation, and the investor can benefit from an overall reduced cost, as digital gold does not come with costs such as making charges, etc.
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Diversification and liquidity
For an intelligent investor, hedging risks is as important as producing high returns. Due to the innate nature of the financial markets, the assets exhibiting high chances of returns often come with a high risk too. To offset this increased risk, one can invest in asset classes with a comparatively lower risk, however decent returns over time. Gold investment provides this opportunity to the investor, as even though the returns may not be on par with the returns produced in the equity markets, the risk is considerably low, which helps in diversification of the portfolio.
Also, considering the fact that gold has produced stable returns over a long period of time, and has low risk, the asset has seen a consistent rise in the demand in the secondary market. Thus, enhancing the liquidity of the asset class. Hence, it makes perfect sense even for long term investors to start buying gold or digital gold to avail these benefits.
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Global market access and security
Gold is one of the few assets which has a global demand. This is due to the fact that the metal is extremely versatile, has many use cases, can be used as a medium of exchange, and also holds cultural significance around many parts of the world. Also, due to the fact that gold has been able to produce stable and good risk-adjusted returns in the past, makes gold investment even more attractive for the investors worldwide.
These qualities have led to an increased demand across the world, and global access to the asset holder, as an investor can ideally buy/sell the asset anywhere in the world. This coupled with the security that gold provides, makes it one of the most sought after investment opportunities available to the investors.
How Digital Gold Investments Work
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Process of buying, owning, and storing digital gold
The process of buying, owning, and storing digital gold is fairly simple for the investors. There are several trustworthy digital gold investment platforms in India which offer these investment opportunities.
For instance, India gold online platform offers 24 carat digital gold investment. One needs to simply either visit the website, or download the mobile application, login or create an account, and then select the buy digital gold option. Here the investor will be presented with 2 options, either to buy in Rupees or buy in Grams. In case the user opts for the first option, they will be triggered to punch in the desired amount which is to be invested, and gold equivalent in weight will be reflected. And vice versa, in the case of the second option. Availability of digital gold, and the support offered by such websites in terms of convenience and ease of investment, and the fact that the investor does not have to worry about the gold storage has made gold purchase really easy for the masses.
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How gold price impacts digital gold
As highlighted earlier, digital gold is backed by actual gold, the only point of difference being that the investors in digital gold security do not get the physical delivery of the commodity, rather a digital asset which exhibits the same characteristics as the actual physical gold. Due to this reason, digital gold too, gets impacted by the movement in the price of actual gold. As and when the price of physical gold increases or decreases, the underlying asset backed by the physical gold, i.e. digital gold also changes in value. Hence, it is one of the best personal investments as investment in digital gold also benefits from increasing price of the physical gold.
Strategies for Investing in Digital Gold
- Long-Term Investment: Digital gold exhibits all the characteristics of physical gold investment. Which makes it one of the most sought after investment avenues of the modern times. Reason being, that gold carries relatively lower risk, and has produced historically stable and good returns. This makes gold a great investment avenue, not only this, due to its ability to produce returns consistently over longer periods of time, it is a potent tool to hedge against inflation.
- Short-Term Trading: Capitalizing on market fluctuations can help an investor make great returns over a smaller timeframe. This involves buying and selling of your gold by gauging the market on possible increase or decrease in the price of the commodity. If an investor is able to time their trade well, they end up making handsome returns. Although the risk in this trading strategy is high, on the flip side the trading strategy offers high liquidity, which allows the traders to capture even smaller price movements, essentially allowing them to make money in a short period of time. Also this high liquidity negates the investor’s needs for other sources of debt funding like personal loan for home renovation, or even a wedding loan, in a way offering flexibility to fund personal expense
- Dollar-Cost Averaging (DCA): Consistent small investments. These consistent investments ensure that the investor builds a bigger portfolio over a long timeframe, in other words you invest a little towards purchase of the same asset at fixed intervals. Consistent investments not only helps with regular investment in periods of rising prices, but also helps with averaging the cost of purchase in times of falling prices, this ultimately benefits the investors investing over long time horizons. There are several tools available online which can be leveraged to calculate expected returns over investment horizons. These are tools similar to personal loan emi calculators, giving an insight into the possible returns.
Costs and Fees
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Transaction and storage fees
Investing in digital gold can be really lucrative when considering the risk and possible returns over the investment horizon. What makes it even more attractive is the cost of owning the asset. In contrast to the traditional physical gold where the cost of capital includes the commodity prices per the purity, taxes i.e. 3% goods & service tax (GST), making charges, stone charges, dealer markup, among many others. However, with digital gold, the investor only needs to bear the rate offered and the taxes, thus essentially negating the additional costs and bringing the total cost of ownership down, making it cheaper to invest in the digital gold compared to the physical gold.
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Platform fees and cost reduction tips
Gold investments in physical form usually attract additional charges in the form of making charges, dealer markup, etc. the benefit with digital gold investments is that it attracts minimal charges in the form of taxes and platform fee. To ensure that you end up paying the least amount of money in additional costs, one should always prefer choosing the right platform. However, this shouldn’t come at the cost of investing in gold on the less trusted platforms, which can essentially put your investment at risk. Also, it is a good practice to always compare prices of the gold being offered by different platforms, as one may unknowingly end up paying high in the form of gold price rather than additional charges.
How to Safeguard Your Investment
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Choosing reliable platforms
In contrast to the physical gold, the digital gold owner does not have physical possession of the security, all they’d hold is the digital certification which is backed by the actual gold, and can be traded for the market price. This raises a lot of questions for the less experienced in the digital assets space. And with ever increasing cyber frauds, being a little fearful is natural.
This is why it is imperative that the investor chooses the right platform to make investments with. These reliable platforms that sell digital gold, most often offer a sense of security, and with their ever evolving security measures, the digital assets remain protected from online frauds, making investing with reliable platforms one of the best gold investments forms available in the market.
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Insurance, vaulting, and monitoring investments
Gold is a fantastic investment, which can not only help the investor produce returns, mitigate portfolio risk, etc. but due to its high liquidity can prove to be a great option to arrange money from. Having gold can diminish the need to keep instant personal loan apps in your mobile as it can support in times of need.
There are different ways to invest in gold, and all come with certain risks. Apart from choosing the right platforms and investment apps, there are certain measures that an investor can take to ensure that their investment is safe from other types of risks. While price volatility risk is the innate nature of the asset, hence cannot be avoided, but other associated risks such as theft, fraud, and market crash risk can be avoided.
An investor can insure their investments to protect the same from any sort of fraud, or theft. Apart from this, regular monitoring of investments can help the investor make appropriate decisions in the best interest of the portfolio to avoid any potential loss.
Conclusion
Digital gold is a gold-backed investment in which investors buy digital units equivalent in value to physical gold but without physical delivery. Physical gold is used up in other forms such as jewelry, but digital gold offers the same advantage of investment risk, return, and value linked to the underlying gold at no extra cost such as making charges. It is thus more affordable and convenient.
Digital gold is the best for inflation hedging, portfolio diversification, and liquidity as it has a global demand. It is secured by physical gold, so the price fluctuates with the price of physical gold. Digital gold is simple to buy, hold, and store, and it is accessible on several platforms where one can invest in grams or rupees.
Investment schemes include fixed return long-term investment, trading for profit on a short term from price fluctuation, and dollar-cost averaging for making investments in the form of frequent small investments over a long term. Digital gold features low fees involved in transactions in comparison with physical gold that entails attached charges in the form of taxes and making charges.
For investment protection, good platforms have to be selected and insurance, vaulting, and monitoring have to be applied. When properly managed, digital gold provides security, world access, and an adjustable form of investment for both novice and seasoned investors.
