Digital gold is a virtual method of purchasing and investing in yellow metal that does not require physical possession of the metal. It is available for purchase online. Furthermore, the minimum buys or sell price is one rupee.
What is the significance of this?
Purchasing physical gold has some drawbacks. The first issue is determining its purity and legitimacy. Second, there are difficulties associated with safekeeping and storage.
Digital gold, on the other hand, is purchased online and stored in insured vaults by the seller on behalf of the buyer.
What about the purity of the gold at issue?
The metal purchased is 24k gold, which is 99.5% pure. Furthermore, the buyer can be confident in its purity because it has been certified by government-licensed agencies.
There are additional advantages to investing in digital gold.
For one thing, the investor can have the gold delivered to his or her home.
It is also extremely liquid. Units can be purchased or sold at any time and from any location.
You can use the digital gold you purchased as collateral for online loans.
Not only is your purchase secure, but it is also fully insured.
Finally, you can exchange it for physical gold in the form of jewelry, coins, or bullion.
The Benefits and Drawbacks of Digital Gold
Advantages: The investor can receive physical delivery of the gold at his door. Invest as little as Re 1 Can be used as collateral for online loans Digital gold is genuine, with a purity of 24K. It is stored securely and is fully insured. It can be redeemed for physical jewelry, gold coins, or bullion.
Cons: Most platforms have a Rs 200,000 investment limit; there is no official regulating body such as the RBI or Sebi; delivery and making charges may apply, and companies may offer limited storage periods.
In India, three major companies provide digital gold: MMTC-PAMP India, Augmont Gold Ltd, and Digital Gold India.
Meanwhile, apps like PhonePe and Paytm provide a platform for investing in digital gold.
The Securities and Exchange Board of India reportedly issued the directive to the exchanges. Following that, the exchanges sent a circular to brokers requiring them to follow the guidelines.
As a result, stock brokers no longer sell digital gold, whereas mobile wallets and investment platforms continue to do so.
Is digital gold safe During the global economic crisis?
Gold has been used as a universal indicator of wealth across cultures and the world for millennia. For as long as records exist, the precious yellow metal has been used for money, jewelry, and other decorative arts. Gold has always had a special relationship with the markets. When the markets have soared, gold has typically fallen, albeit by a small margin. When these same markets crash, gold prices typically rise, possibly due to an increase in demand as investors seek safer havens.
This point is reinforced by examples from the last few decades. As an example, consider the 2008 financial crisis. Many important indices around the world suffered significant losses as a result of the subprime mortgage crisis, including Indian benchmark indices, which had fallen to record lows during the 2008 fiscal crisis, signaled by the bankruptcy of Lehman Brothers. In fact, the S&P BSE Sensex in India fell more than 50% between January 2008 and February 2009.
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At the same time, gold prices rose from slightly more than $700 per ounce to $1900 per ounce by October 2011. During these three years, global equity markets were volatile, and investors relied heavily on gold as a stable store of value. After 2011, the price of gold began to fall as stock markets stabilized. This same phenomenon has been observed in more recent years, such as when the pandemic hampered economic activity and created a labor shortage. As a result, the Indian government kept bond yields low. Gold prices increased by 24.6 percent over the previous year.
With the advancement of technology, gold investors now have digital access to this store of value. New-age investors around the world are becoming aware of digital gold, a hassle-free, storage-proof, quality-assured, and easily accessible version of the yellow metal.
For today’s digital natives, quality-assured digital gold can be purchased or sold at the touch of a button from the comfort of their own homes, which is then assigned to the purchaser and stored in a world-class gold storage facility by the digital gold provider.
In times of economic downturn, digital gold is a preferred investment option due to both history and technology. Let’s take a look at why.
When the GDP is growing, investors may buy shares in a company because the increase in share value often has an immediate impact on earnings. However, if the company’s stock price falls during a recession, the investor risks losing money. For example, the Sensex was around 40,000 a few months before the pandemic and dropped to 25,000 when it began.
A significant portion of retail Investors can also choose fixed income strategies such as a Public Provident Fund Account (PPF), savings deposits, and so on to earn a fixed rate of return on their investments. During a recession, however, central banks, including the RBI in India, lower repo rates (currently, it is 4.9 percent in India). As a result, the interest rates on fixed income deposits for investors are reduced. These returns become even paler after inflation. As a result, even for these investors, digital gold can be regarded as a safe haven during a recession.
A sizable portion of retail Fixed income strategies, such as a Public Provident Fund Account (PPF), savings deposits, and so on, allow investors to earn a fixed rate of return on their investments. However, during a recession, central banks, including the RBI in India, lower repo rates (currently, it is 4.9 percent in India). As a result, investors’ interest rates on fixed-income deposits are reduced. After inflation, these returns become even paler. As a result, even for these investors, digital gold can be considered a safe haven during a downturn.