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Tuesday, January 31, 2023

Financial gold is good option

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Here, we discuss if digital gold is a better investment than financial gold.

Physical vs. financial

Digital gold refers to gold you can buy online from MMTC-PAMP. Your investment is held in virtual form until you decide to sell it back to MMTC-PAMP or redeem it to receive the underlying 24-carat gold. Financial gold refers to investments in gold ETFs (exchange-traded funds).

There are two reasons to buy gold. One, you want to bet on the volatile movements in gold prices. And two, you want to eventually buy gold ornaments for your family. Should you buy digital gold or financial gold to achieve these objectives?

When you redeem digital gold, MMTC-PAMP will levy making charges towards cost of minting the coin in addition to delivery charges. If your objective was to buy gold and convert it into jewellery, financial gold will be cost-effective because transaction cost is lower. In both cases, the jeweller will charge you for making the ornament. So, that is irrelevant to our discussion. What if you want to invest in gold to capture volatile price movements? Financial gold is better because you can easily buy and sell on the NSE through the trading account with your brokerage firm.

If your objective of redeeming digital gold is for the emotional satisfaction of owning the physical gold, then the argument that financial gold is better does not hold water.

But the touch-and-feel aspect of gold should be more for personal effects such as ornaments than for investments. One exception is passion assets — assets that are collectibles and carry investment value because they are rare.


One could draw parallel with wine NFTs (non-fungible tokens) sold by vineyards to argue the benefits of digital gold.

When you want to redeem NFT for wine, Dom Perignon, for instance, will ship the earmarked bottle to your address; like redeeming gold with MMTC-PAMP. But wine NFTs are different in two ways. One, you will consume wine as is, unlike digital gold which will most likely be converted into ornaments. And two, though there are wine exchanges to buy and sell wine with some offering storage facility, wine trading has not caught on in a big way yet.

(The author offers training programme for individuals to manage their personal investments)

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