Difference between Physical Gold, ETF Gold, E-Gold

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E Gold vs ETF Gold vs Physical Gold Comparision: http://downloads.vridhi.co.in/e gold.pdf

Also Read: http://vridhi.co.in/2011/08/20/invest-in-e-commodities/

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42% was the one-year (August 2010-August 2011) return delivered by e-gold compared with 40% for gold ETFs. While the marginal difference in returns can be attributed to the cost-effectiveness of e-gold, both these avenues provide ease of investing by allowing people to hold gold in the demat form. However, each product has its pros and cons-while gold ETF is a more tax-efficient means of investing, e-gold offers the option of physical delivery. This is perhaps the reason experts remain divided on which route makes for better investment, finds out ET. Based on their opinion and depending on your individual needs, find out whether you should go for e-gold or gold ETF.

Anjani Sinha, Managing Director, National Spot Exchange

source: fwd mail

E-GOLD
The biggest advantage that investing in e-gold has over gold ETF is that it involves no management costs or other recurring expenses. So the product is a lot more cost-effective for people who have a long investment horizon.

The only charges involved are a one-time transaction fee of 2-3 paisa per gram and a brokerage fee of 0.2-0.3%. Both these charges are also levied in case of gold ETFs, but are much higher. E-gold can be converted into physical gold for quantities as small as 8 gm, while gold ETFs offer the option of physical delivery but only for a denomination of over a kilogram. Accumulating such a huge amount of gold is not feasible for small investors.

Besides, the delivery centres of the National Spot Exchange are located in 15 cities, while ETFs have only one delivery centre in Mumbai. E-gold can also be directly converted into jewellery through select, reputed jewellers that conform with the purity and transparency guidelines. The investor only has to pay for the making charges. The National Spot Exchange aims to bring all branded jewellers under its umbrella of empanelled jewellers within a year.

The liquidity in e-gold is also increasing phenomenally, with the current average daily turnover being Rs 200-250 crore compared with Rs 15-20 crore in case of gold ETFs. Liquidity is of utmost importance for a retail investor as it makes buying and selling more efficient by reducing the impact cost (which is the bid-ask spread). The impact cost for e-gold is only 10-15 paise, as opposed to Rs 4-5 in gold ETFs.

E-GOLD
E-gold wins hands down against gold ETF. In India, the rural community and the middle-to low-income group have a tendency to flock to gold. For the typical Indian investor, e-gold is more suitable as it provides the option of delivering the yellow metal and, hence, bridges the gap between using it for investment and the traditional, auspicious reasons for buying it.

Unlike in gold ETFs, where prices are measured in terms of the net asset value, it is simple to understand e-gold because of the transparency in pricing. A small investor, who wants to accumulate gold for his daughter’s wedding or a festival, can easily do so through planned, monthly or weekly investment in e-gold. In this manner, he can also guard his investment against price volatility. E-gold has also been providing better returns than gold ETFs.

The primary reason for the differential is that in the case of investing in gold ETFs, there is a range of charges, such as management and advisory fees, marketing and distribution expenses, custodian charges and other operational expenses. The expense ratio of gold ETFs is around 1%. Apart from the charges, tracking error also brings down the returns of gold ETF’s a little bit.

Tracking error is a measure of how closely a portfolio follows the index against which it is benchmarked. A gold investor always aims to achieve returns in line with the ones provided by physical gold. While e-gold directly tracks the domestic, physical gold prices, gold ETF only mirrors them. Certain gold ETFs have the flexibility to invest up to 10% of the total net assets in money market instruments and this can lead to tracking error. Some ETF companies also invest in gold futures and in a basket of gold mining companies.

The earnings of a gold mining company may not reflect the price movement in gold, thereby reducing the impact of the price rise. As a result, the returns from ETFs may not be similar to those from investing in physical gold. The market-timing is another crucial factor that an investor should consider. One can trade in gold ETFs only till 3.30 p.m., while e-gold can be traded till 11.30 p.m., providing the investors greater flexibility and global cues while trading in gold domestically.

GOLD ETF
The idea behind both the options is the same-both e-gold and gold ETFs aim at relieving investors of the worry of storage and purity, making gold investment more efficient and convenient. However, gold ETFs make for a more sensible investing option compared with e-gold because of the different tax treatment meted out to the returns from the two.

While the short-term capital gains tax for both the products is charged according to the marginal rate (tax slabs), the tenure for the application of this rate differs. An investor has to hold e-gold for over three years for it to be considered a long-term capital gain, while gold ETFs need to be held for only over a year. Also, the long-term capital gains tax for gold ETFs is levied at 10%, while the tax is 20% for e-gold. E-gold also invites wealth tax, whereas gold ETFs don’t.

Besides, the investors have to go through the inconvenience of opening a separate demat account to be able to trade in e-gold, while one doesn’t have to do so for gold ETFs as the demat account for shares can be used for the ETFs as well. Hence, administration is not at all cumbersome. However, if an investor is primarily interested in getting physical delivery of gold then, e-gold is the ideal mode of investing. However, investors also need to keep in mind that for physical delivery, they will have to pay a charge and VAT at the rate of 1% each.

GOLD ETF FOR NOW
At present, investing in gold though ETFs would be more prudent for small investors. While it’s true that investing in e-gold is relatively cost-effective, it’s also a new product. It was launched only in March 2010 and, hence, should be given more time to evolve before retail investors venture into it.

Gold ETFs, on the other hand, have been around since 2007, are traded on reputed stock exchanges and are backed by good fund houses. The average daily volumes are significantly higher in the e-gold segment, but this could also be due to the authorised participation and contribution of high net worth individuals as the commodity markets have been seeing encouraging turnover growth for some time compared with that in the equity markets.

It is also true that being linked to physical, domestic gold prices, e-gold mitigates the currency risk better than gold ETFs. According to the norms of the Securities and Exchange Board of India, the actual benchmark for gold ETFs is not the domestic price of physical gold but the London Bullion Market Association’s (LBMA) gold price.

This price is in terms of the US dollars and has to be expressed in domestic currency, thereby allowing exchange rate fluctuations to adversely impact the gold ETF NAVs. However, not being linked to LBMA’s guidelines also has its drawbacks. The purity of e-gold is not approved by LBMA and there is no standard benchmark in domestic gold prices. E-gold will definitely overtake gold ETFs as an investment route over the next two-three years. Till then, stick to gold ETFs.

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source: Fwd Email, Author: unknown

The majority of the investing world, like countless times throughout history, has once again found itself spellbound by gold’s luster and I’m here to tell you why I think gold is a bad investment.

I’m feeling another black sheep moment coming on.

Truth is, gold has had a heck of a run. Over the last 5 years, gold has outperformed the S&P index by ~140%. It has successfully breached the $1000 psychological resistance level, and gold bulls are prognosticating that gold can go as high as $2000, maybe even $3000, if inflation slams the U.S. Dollar.

While these are impressive achievements and even more impressive projections, what concerns me is the ubiquitous bullish mentality and everyone trying to convince us that the rally can’t be stopped. When this occurs, you can bet with a reasonable degree of certainty that the gold bubble (if it exists) is about to burst.

10 Reasons Why Gold is a Bad Investment

1. Gold has become front page news. Every time I flip on CNBC or click to mainstream financial website, I have a better than average chance of being reminded gold is once again at all time highs. Anytime an investment — gold, housing, oil, or even tulips — has become front page news, the end is likely drawing nigh and the smart money is slowly exiting the playing field. Remember, the smart money sells when the news is at its best.
2. Gold Bubble? Anyone? Anyone? Remember that little thing called an oil bubble? How about the housing bubble? Maybe a stock market bubble? When any type of investment has substantially appreciated over a small time frame and everyone you know is still buying into rally, it’s time to take off the blinders. Do your due diligence, set aside your emotions, and don’t fall into the comfort of following the rest of the herd. Otherwise, you’re chasing the fast money.
3. Gold is a sure thing. When you hear that any type of investment is a “sure thing”, you should immediately declare a state of shenanigans. Moreover, you should be doubly suspect when that “sure thing” has doubled in value over the last 5 years. Anyone remember the statement the false claims that real estate was a sure thing and can never go down in value?
4. People will laugh and ridicule you for suggesting it’s a bubble. I have no doubt that I’ll receive hate mail for even insinuating a gold bubble has formed. They may be right and I might be completely wrong. But when everyone you know is on the side of the majority, and will laugh in your face at the very suggestion that you have identified another investment bubble, it’s time to start asking the hard questions.
5. Everyone trying to make money on the gold rush. The fact that so many people are piling into the gold business, whether that be making a few bucks selling gold coins to a growing number of esoteric gold-related ETFs, tells me the game may be up. For example, when you see the hard sell advertisements promising extreme returns on your investment, the ethics police might need to step in (as well as the Better Business Bureau).
6. What value does gold really have? Other than gold is pretty to look at, is chemically inert, and is the preferred metal of satellite manufacturers, what hidden value does gold really possess other than mankind’s desire to possess it? If the doom and gloom soothsayers are right, would you prefer to own bag of gold coins or a fully stocked pantry with rice and beans? Gold really only holds value to those people who put value in it, and in these days, those people have the prerogative to change gold’s “value” with a few clicks of the mouse.
7. Gold produces no tangible income. Unlike real estate, equities, or other dividend paying investments, gold does not produce income. If you were to lock away a dozen American Eagle gold coins in a safety deposit box for 20 years, you would be forced to rely on the value of gold 20 years from now to be higher than it was when you purchased them. As investors who bought during the real estate or tech bubble found out, it may take decades to make their money back, if they ever do.
8. Who even uses gold these days? As a joke, ask the checkout clerk at your local grocery store if you can pay with a gold coin that is worth $1000 instead of your debit card. Our present society is no where near geared for a conversion back to a currency that hasn’t been minted since the Great Depression, and I suspect it wouldn’t go over that well.
9. Gold might not be the best investment to hedge against inflation. Being that we live in the 21st century, there is a good chance we might put more value in other commodities. With gold, the only thing you can do is lock it away in a vault and hope someone doesn’t steal it from you once you’ve got it. Alternatively, commodities like gas, rice, even cattle, would probably have more usefulness (on the consumer level) since you can use them as food, fuel, or other things society would deem more valuable. Gold may be edible in small amounts, but I would rather have a steak any day.
10. Speculators, speculators, speculators. When hedge funds and big money traders are trading 100,000 share blocks of the Gold ETF, you know the sharks are circling. No one can deny gold has had a tremendous run, but it is partly due to fast money trading firms consistently bidding up shares looking for the quick buck. When these guys decide to start cashing in their profits, or they feel that there is a risk to their capital, they will liquidate mass quantities of shares and will push the gold market down in a hurry. They will also start piling on the shorts and that’s when things begin to turn nasty for the long term buy & hold investor.

Bottom line is that gold has significantly appreciated over the short term, has drawn the attention of every fast money trader around the world, and the advertisements are beginning to target the Mom & Pop investors. I don’t have a crystal ball so I can’t predict the future, but if history is any indicator, it looks like we’re setting up for another bubble to pop.

Whether the gold bubble bursts at $1000, or $3000, is anyone’s guess and best left up to the speculators. Not the investors.

So what’s your take?

Do you believe we’re just setting up for another gigantic bubble to burst? Will gold trade sideways for a dozen years or will it continue to shoot the moon? Do you think the Federal Reserve will allow the U.S. Dollar to continue to fall and gold (or other foreign currencies) to replace King Dollar?

Our View: We at VRIDHI believe that, though an investment may be good it does carry inherent risks. We also believe that we should post different opinions of different people which would help investors see both sides of the coin. Different opinions help a person Think! and that is the real process of Investor Education which VRIDHI intends to impart.

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Sangeetha G, Financial Chronicle, 25/8/11

source: http://www.mydigitalfc.com/news/nsel-plans-launch-e-series-products-nickel-steel-431

National Spot Exchange is launching nickel and steel under the e-series products next month. The exchange also has been witnessing over 100 per cent increase in volumes as well as the number of new accounts opened in the month of August as the gold prices started escalating to record high levels almost on a daily basis.

NSEL currently has five products in the ‘e-series’ — e-gold, e-silver, e-copper, e-lead and e-zinc. Of the two new products, e-nickel will be available in one kg contract and e-steel in one quintal. “Nickel prices have come down from Rs 2500 a kg some time back to Rs 900 and Rs 1000. The fundamentals in steel are strong and prices are expected to firm up with increased demand from the industry. We expect good interest from the retail investors as well from the metal consumers,” Anjani Sinha, CEO of NSEL told Financial Chronicle.

The exchange has been seeing increasing interest from the investor community after the gold prices started the bull-run. “Increased interest from retail investors has been evident in the e-products as they are not affected by the day-to-day volatility in the metals. Around 17,000 new accounts were opened in the month of August against the usual 8,000 to 9,000 accounts a month. The volumes too have increased over 100 per cent. From Rs 100 to 120 crore a day, the daily turnover of e-gold on some days of August has also gone up to Rs 250 crore. Similarly, the turnover in e-silver also has gone up from Rs 160 crore to Rs 300 crore,’ he said.

Business Line, 19/8/2011

source: http://www.thehindubusinessline.com/markets/gold/article2373080.ece

Commodity spot exchange National Spot Exchange (NSEL) has witnessed a record increase in turnover of “e-gold” during the first four months of the current financial year.

Average monthly turnover of e-gold increased to Rs 3,082.60 crore in the first four months of FY’12 as compared to Rs 436.89 crore in the corresponding period of last fiscal, NSEL Managing Director and CEO, Mr Anjani Sinha told a press conference here today.

In the first eight months of the current calendar year, turnover of e-gold has risen by 60 per cent — from Rs 2,377 crore in January 2011 to Rs 3,823.63 crore in August till now, he said.

The Financial Technologies (FTIL)-promoted NSEL also recorded the highest daily (single day) turnover of Rs 359.67 crore for 2011 in e—gold on August 16, and a record delivery of 1,29,967 units on August 11, 2011, he stated.

NSEL launched e-series products, starting with gold, in March 2010 to meet the growing demand among retail investors to invest part of their savings in commodities, he said. The exchange added e-silver in April, copper in November and e-zinc in January 2011.

The ongoing bull run in gold is further boosting demand for e-gold, which has become a preferred investment avenue for retail investors because of the ease and security it offers, and also because it has given better returns than other investment products in the yellow metal, Mr Sinha said.

Since its launch, e-gold has given a return of 57.58 per cent, which was the highest compared to all other forms of investments in the precious metal, he said.

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