There are several reasons to put your gold to good use. For starters, people are always looking for the best way to generate high returns. On that note, gold has forever been the conservative investor's best avenue for yielding high returns. With the introduction of Gold ETFs and Sovereign Gold Bonds, the demand for gold has been steadily increasing. The top advantage of gold against cash is that the gold gram rate has never dipped below zero in it’s more than 3000-years' history. Gold also functions as a hedge against financial market fluctuations. Hence, whenever there is a recession, people move towards gold. Additionally, gold is a liquid asset, which means you can either sell it or pledge it in exchange for instant cash loan. Unlike physical money, gold is portable and can be stored anywhere. Lastly, identifying high-quality gold does not require expert understanding. Anyone can buy gold according to its purity while the seller's certificate acts as the proof of its purity.
The intention behind applying quantitative easing is to counter the situation created by an economic slump. Typically, during an economic downturn, the demand for credit goes down and deflation hits. Even though central banks around the world use interest rate manipulation to tackle such situations, QE is usually their last resort.
Points to Know about QE
The relationship between QE and gold is inversely proportionate. It means when money is injected into the system, the price of gold goes down. Although extra money makes it seem like the gold prices are soaring, that isn’t the case.
With the implementation of this tactic, the gold prices largely remain the same, grow but at a slower pace, or even go down during certain instances.
Here Quantitative Easing Tapering is also vital to know about. It means when a central bank agrees to stop new currency printing, which results in a shortfall in the system. So, the flow of cash goes down, but the amount of gold remains the same. Hence, the price of gold increases steeply.
The implementation of GST has particularly affected the prices of commodities like gold.
Effect of GST on Gold Prices
As per the new tax structure, the GST on gold is set at 3% for both finished and unfinished products, which will be paid by the end consumer.
Apart from this, the tax regime also levies an additional 5% on making charges of gold jewellery. The additional charges have upshot the price of gold as there were no making charges in the previous taxation system. This rate is, however, a revised version which was initially set at 18%. The initial GST on making charges would have affected the prices of the finished products massively since end-consumers had to bear all the expenses. However, the 3% GST, the 10% import duty, and 5% making charges have made the yellow metal’s price increase by 0.75%.
Gold is universally acknowledged as a valuable commodity pertaining to its unique properties, such as:
Gold is available in limited quantities. The best estimates suggest that about 197,576 tonnes of gold have been mined throughout history. In fact, if every ounce of this gold is arranged in a cube, each side of this cube will only measure about 21 metres.
The price of gold tends to rise over time. This is because its demand is exceedingly high in countries India, but the supply is limited.
Gold is a highly liquid, non-consumable asset. Additionally, this metal retains an active market at almost all times. So, individuals can easily convert their gold to cash whenever they want.
It impacts economies in terms of contribution to foreign exchange and trade balance. Furthermore, gold is used as a reserve to hedge against inflation in most free-market economies globally.
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