Dubai: With gold prices recently falling from their record highs, putting your money in digital gold is now widely considered to be a cost-effective alternative to buying physical gold. But are virtual means of investing in an asset ever worth your money?
Digital gold, commonly referred to as ‘DigiGold’, is simply a method of investing and buying gold online without literally holding the gold yourself. Each unit of digital gold is backed by the real-time price of 24-karat 99.9 per cent purity gold.
And in this case, you do not take possession of the gold you buy, with the ‘storage’ done under your name elsewhere. When you feel the time is right, you can sell your gold ‘holdings’ at a time you choose. The key advantage is that you can buy gold from as low as Dh100.
Moreover, the purchase and sale happens online at market prices. With the underlying asset for these investment avenues being physical gold, you get returns according to its spot price of gold on the market.
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What are the perks?
"Depending on the needs of an investor, physical gold and digital gold are both good choices, even today,” said Rochelle Mariam, a Dubai-based precious metals retail analyst. “While the need for jewellery can only be met with its physical form, for financial reasons, DigiGold has its perks.
“With virtual gold, buyers do not have to worry about purity and genuineness. Chances of fraud are negated, and purchasers get the value that they have paid. You can also convert digital gold into cash and buy jewellery without the hassle of deductions common with physical gold.”
Moreover, as gold has widely been recognised as a ‘safe haven’ against inflation, you won't lose money when price spikes turn global markets sour. This is why Mariam reiterates that with digital gold, you have additionally found a secure way to protect your investments from unstable markets.
However, before you invest, it's vital to know further how digital gold works. “Like any investment, you run the risk of loss – and that risk is magnified if you don't know the facts, particularly when it comes to DigiGold,” said Georgina Effel, another Dubai-based precious metals analyst.
What are the big risks?
“In the case of digital gold, there is an additional cost charged from an investor, which is referred to as a ‘spread cost’. A spread cost will be counted with multiple additional costs like - storage cost and insurance cost, etc. The ‘spread cost’ generally ranges between 3 and 6 per cent.”
Also, investment in digital gold can be made only for a limited period as the metal cannot be stored permanently in those vaults. Following the lock-up period, the gold shall be delivered or sold, and the money will be transferred to your account.
“If the gold is to be delivered, it will involve delivery charges. Further, it will be delivered in the form of gold coins, gold bars, or even jewellery. Therefore, converting the existing gold into gold coins, bars, or jewellery will involve making charges,” added Effel.
“In the case of physical gold, you can sell it anytime. However, DigiGold platforms often place certain limitations on selling digital gold. Further, we can sell the digital gold only from the platform from which we bought that gold. Some allow the selling of gold only when the selling window is open.”
How is digital gold different from gold funds?
Apart from purity, convenience and liquidity, which are a few of the key factors that set gold funds apart, DigiGold is less expensive compared to gold funds as the latter is exposed to various charges like asset management fees, security service fees, etc.
Additionally, to know the current value of your investment in gold funds, you have to track the value of that fund but in the case of e-gold, the value is that of the current gold price. (A gold fund is a type of investment fund that holds different investments related to gold.)
1. Enter an amount in currency or grams – You can buy gold of a fixed worth, or buy by weight at the live market rate.
2. Choose your payment method – Once you complete the verification process, you will have multiple payment options to choose from such as an account, card, or e-wallet.
3. Store your gold in a secured locker – For every purchase of digital gold you make, an equivalent weight of physical gold is deposited in a secured locker, and can be accessed round-the-clock.
4. Sell whenever you want – You can choose to sell your gold digitally itself to the platform whenever you want, but some have a lock-in period i.e. you can sell after 24 hours of purchase.
5. Take physical delivery of the gold – In case you choose to not sell the gold, you can request for a doorstep delivery of your gold in the form of coins or bullion. However, delivery charges apply.
Digital vs. physical gold: Key takeaways
• While figuring out how to buy gold previously might’ve been a formidable task, there exist now a number of options pertaining to buying gold that allows you to invest in the commodity without having to physically purchase or collect it. This is where digital gold comes in.
• Simply put, digital gold is an alternative to buying the yellow metal in its physical form. One can purchase gold online, and an equivalent amount of that is kept as physical gold in a secure locker, for even a nominal amount.
• “Hidden charges are a key factor to consider before investing in digital gold. Cross-check any or all charges involved, else they will adversely affect the overall returns from the investment,” added Mariam. “Buying digital gold is also prone to cyber thefts that come along with any e-transaction.
• “Also, digital gold often has a maximum holding period after which the investor has to either take the delivery of gold or sell it further. In some cases seen overseas, these periods are about 5 to 7 years. Investors must pay exorbitant charges for storage if the delivery is not taken on the due date.”
Bottom line: Should you opt for digital gold over hard metal as prices drop?
The bottom line is that if you’re a long-term investor looking to get the most out of gold’s increasing value, then investing in physical gold helps. However, short-term investors looking to make quick profits on the volatile gold market will find that investing in digital gold offers the most flexibility.
“Price drops, just like this week, make it an ideal time to choose either form of the yellow metal. However, as you can easily sell the digital gold you hold in your app wallet anytime without worrying too much about any extra costs, DigiGold has a cost-effective edge over physical gold,” Mariam added.
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