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Pros and cons of investing in physical gold

  December 30,2022

Gold on Your Mind? Pros And Cons of Investing in Physical Gold

Gold is not only an attractive investment in the case of market stress but also Indians use gold auspiciously and consider it a sign of wealth. To put it into perspective, India is the second largest consumer of gold worldwide, followed by China. In India, gold is majorly used by the household, and its demand skyrockets during the festivals like Diwali and Akshay Tritiya and occasions like weddings.

However, it is wrong to say that gold can be purchased only in its physical form. People can also invest in gold through gold ETFs, gold funds, and sovereign gold bonds issued by the RBI.

When we talk about investing, diversification is an essential part of investing strategy if you are willing to optimize your portfolio by minimizing the risks and maximizing the average returns. Gold might be a better option during market stress, as it is a tangible asset. But it doesn't mean you can blindly put all your hard-earned money into gold without investigating all the other aspects of investment, making comparisons, and analyzing your requirements.

Let's discuss the pros and cons of physical gold investment.

Pros of investing in physical gold

Hedge against inflation

Gold holds the tangible value of the precious metal, which only rises over time if you look at the historical data. When inflation increases, the purchasing power of individuals decreases. If you have cash in your hand, it will decrease the value over time. On the other hand, when we talk about different types of investments, like investing in the stock market, it also goes down as individuals start selling their shares out of fear.

Protection during market stress

It is not necessarily true, but when the market is under stress, and the economic condition is not looking good enough to sustain, gold prices may increase as everyone preferably invests in gold. The price of gold is positively correlated with the increase in customers' negative expectations, but it is not always true.


There is no shortage of market availability for physical gold. You can buy them from any jeweler. However, it is necessary to ascertain the quality of gold you buy from your jeweler. You must be aware of fraud. You can just go and buy gold either in the form of jewelry or bars. You must keep one thing in your mind when you purchase jewelry. You have to pay to make charges additionally.

Cons of investing in physical gold

Storage problem

Your home is not the best place to keep your physical gold. It will help if you keep your physical gold in banks or any other service that keeps your valuables safe in exchange for an annual charge. It is important to understand the risk of theft will always be a concern for physical gold.

No passive income opportunity

If you are looking forward to having a passive income from your investments, there are better options than investing in gold. Rental income, interest, dividends, etc., are examples of passive income, which is not possible when you invest in physical gold. You will get the value of gold after selling it.

Low resale value in the local market

If you buy pieces of jewelry as an investment, you will get only 90-95% or less of the current market value of your physical gold jeweler. Moreover, only some jewelers will be willing to exchange your gold for money. Isn't it annoying enough? It might save the value of your money, saving you from market stress, but you need to remember that pieces of jewelry will not add value to your asset allocation.

A gold market correction can hurt investors.

Investors, when selling their shares due to panic, have observed that they start to buy gold at premium prices. Investors start buying shares of fundamentally strong companies when the stock market recovers then gold prices go down. Such a panicky decision might hurt the investors.


Gold appears to be a good hedge and safe investment against inflation if you have the knowledge and financial expertise. Whether you are looking to invest in physical gold bars or just starting out investing in general, you should ensure that you understand the risks before you get heavily involved. 

This blog is purely for educational purposes and not to be treated as personal advice. Mutual funds are subject to market risks, read all scheme-related documents carefully.