Invest in Banks Instead of in Gold -Be Instrumental to the Development of Economy

I was pained to read one news item recently where an old aged husband and wife leading a peaceful life in the outskirts of the city were strangulated to death just for the sake of stealing away the jewels.  In another case, a poor lady witnessed a near death situation when the perpetrators chased her just to remove here of the jewels (though unfortunately the jewels were just imitation jewels).  Then, it struck to me to think as why is this craze that people are chasing the yellow metal to have in their investment list.  Actually, if you analyze the situation well, you could have contributed a lot to the improvement of the economy of the country as well your personal self, by staying away from this gold.  Had you made these investments in banks and post offices, the Governments would not embark upon large borrowing program (at least to the extent of total of such deposits) and could have saved the avoidable interest.

I do not say that you should altogether avoid it.  It is enough that you have the barest minimum to show you off in the pomp functions (mainly the use of the ornament is just that and no more else!).

An investment of Rs.500 (about $11 in today’s rate) at 10% p.a. quarterly compounding interest 40 years before in the bank deposits or post office deposits would have resulted in a net wealth of Rs.32, 000 ($712 at today’s rate).  The market value of the investment in gold also would have resulted in a similar yield.   Then, why do people go for this risky investment.

Besides the above danger to your life, it results in a pecuniary loss also, as detailed here below:

About 60% of the investments in jewels are used to fall back upon liquid cash in case of emergencies, by pledging them.  If you pledge the jewels, there is a clear interest payable on an average at 15% p.a.   Such an interest compounded monthly and assumed to be for a period of about 18 years (18 years is assumed to be the period  when the jewels were under pledge out of the 40 year spread when the investment was held by you) would mean a loss of interest to the tune of Rs.2, 682 ($60 at today’s rate).

If you borrow on a deposit, the interest rate for the borrowing will be just 2% p.a. or 1% p.a. over and above the interest rate on deposit.  But, for the jewel loans, the entire 15% has to be shelled out of your pocket.

If you try to dispose of the jewels with an intent to get a latest design, there will be a two pronged loss as wastage one at the time of disposal and another at the time of purchase.  I think this loss may run into tones.

One of the reasons for investment in gold is that it can be in the officially unaccounted form.  This you can ensure in bank/post office deposits also, by fragmenting you large quantum in to the different accounts with the different bankers.