India's demand for Gold.

 

Gold demand in India will continue to grow in the next decade. The steep rise in the price of gold over the lst 10 years makes it look like a bubble. However, there is a key factor at work. The rise of India!.  During this period, India's demand for Gold went up by 25%. India's demand for gold is expected to grow  by almost 3% per annum over the next decade.

"“The rise of India as an economic power will continue to have gold at its heart. India already occupies a unique position in the world gold market and, as private wealth in India surges over the next ten years, so will Indian demand for gold....“Indians tend to be risk averse and place great faith in the wealth preservation qualities of gold, which inspires confidence, stability and security. Therefore, the view that Indian demand for gold will be driven by the concept of enduring value, not price." - World Gold Council.

 

Source: www.usagold.com

Warren Buffett on Gold: "[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

Gold ETFs - convenience and the tax liability

Gold is still trading near its all-time high. Many feel that the gold bubble will burst soon, dollar is strengthening. But inflation is everywhere, banks in the western world are printing more money. Will the bull run continue? Historically dollar has won. This time around, it is a very different situation. Thinking QE2, and dollar debasing, gold could well become a standard?

 

What is interesting is that over 12% of total gold consumption is now through ETFs, which is a very convenient way to hold gold. While Gold ETF's trail gold price, mark-up charges by banks and making charges & wastage for jewellery is no free ride. The cost of maintenance for ETFs will go down, and gold ETF's ia a very attractive tool. With ETFs, you can buy gold in whatever small chunks you feel comfortable with.

 

So, what do you need to know from a tax perspective? Gold ETF's held for over a year qualify for long-term capital gains tax. But, wait! From a tax perspective, gold ETF's are treated as debt funds, not equity funds. So, you will have to shell out some income tax. Gold held in paper form does not attract any wealth tax (unlike physical gold). So, book some profits but keep some exposure in this uncertain environment.