What Is Digital Gold

What Is Digital Gold

by Tanushree Jaiswal Last Updated: May 29, 2023 - 03:51 pm 6.3k Views
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Introduction

Digital gold is a concept used to describe cryptocurrency. It is supposed to be a digital equivalent of physical gold. It is a blockchain-based asset that enables investors to exchange and hold gold digitally without having any metal. On several cryptocurrency exchanges, digital gold may be traded in real-time and has a value typically correlated with the cost of physical gold. Investors who possess digital gold can benefit from the diversification and inflation protection that come with physical gold ownership without the bother of purchasing, storing, and safeguarding physical gold.

Digital Gold vs Physical Gold | What is Digital Gold | Sovereign Gold Bond | Gold Fund | Gold ETF

 

What is Digital Gold?

Digital gold, meaning cryptocurrencies like Bitcoin and Ethereum, has gained significant attention and popularity as an alternative investment option in recent years. Investors can purchase and sell gold using this digital asset without having any of the metal. Blockchain technology, which offers a secure and open transaction ledger, generates digital gold. Since the price of physical gold immediately affects the value of digital gold, it is a secure and dependable investment choice. Investors who own digital gold can take advantage of the safety and dependability of real gold ownership while also taking advantage of the simplicity and accessibility of cryptocurrency trading.
 

Benefits of Digital Gold Investment

"Is digital gold safe?" is a common question that arises among investors considering cryptocurrency as an investment option. Here are some benefits listed of digital gold investment:

Secure Storage

Secure storage is the practice of securely keeping priceless objects, such as priceless jewellery, cash, or crucial documents, in a secure area. It entails taking several precautions to ensure the objects are not destroyed, lost, or stolen. Safes, safety deposit boxes, and secure storage facilities are a few examples of secure storage.

No Lower Limit on Investment

No minimum sum of money is needed to begin investing if there is no lower limit on investment. Because of their ability to start modestly and expand their contributions over time, this enables a wider range of investors to invest. 

Use as Collateral

When used as collateral, an asset is pledged as security for a loan or other monetary obligation. Using an item as collateral enables individuals or organizations to borrow money or access credit. Real estate, automobiles, and investments are typical examples of assets used as collateral.

Ease of Exchange

The capacity to rapidly and easily change one asset or money into another is called ease of exchange. It is frequently crucial for investors or individuals who move money or property between accounts or nations. For instance, cryptocurrencies facilitate quick and frictionless trade between various assets and currencies without intermediaries or intricate financial systems. 

Genuineness

Genuineness is a term used to describe the truthfulness or legality of a given good, service, or transaction. It is crucial for fostering mutual trust and ensuring that services and products live up to their promises. Utilizing secure payment methods, confirming the parties' identities, or running background checks are just a few methods to ensure a product's or transaction's legitimacy. 

Risks with Digital Gold

These are the risks of buying digital gold: 

No Regulatory Body

The phrase "no regulatory body" denotes the absence of a governing body or formal organization in charge of implementing regulations or standards in a specific market or industry. This supervision gap may result in inconsistent business practices, diminished responsibility, and risk to investors and customers. 

Storage Time Limit

Storage time limits describe how long items or assets can be kept in a specific place or facility. Several variables may establish storage time limits, including regulatory restrictions, rental contracts, or the type of objects being held. 

Upper Limit of Investment

The largest sum of money an investor may invest in a specific asset or investment vehicle is the upper limit of Investment. Regulatory bodies, investment funds, or financial institutions may set upper limits to guarantee effective risk management and diversification. 

Who Sells Electronic Gold?

Many businesses, including online brokers, banking institutions, and specialized gold dealers, can sell electronic gold. Typically, these vendors provide investors with digital gold products, such as exchange-traded funds or digital gold tokens, that let them buy and sell gold without owning or keeping the metal. The SPDR Gold Shares ETF, Goldmoney, and BullionVault are a few well-known electronic gold suppliers.

Different Ways of Investing in Digital Gold

Different wants of investing in digital gold are: 

Gold Exchange Traded Funds (ETFs)

ETFs that follow the price of gold expose investors to the precious metals market without requiring actual ownership. ETFs trade on major stock exchanges like ordinary stocks and invest in physical gold or futures contracts. It allows investors to purchase and sell shares anytime during market hours. As a result, ETFs are a well-liked method for investors to include gold as a protection against inflation or market volatility in their portfolios. The iShares Gold Trust (IAU), SPDR Gold Shares (GLD), and Aberdeen Standard Physical Gold Shares ETF (SGOL) are a few well-known gold ETFs. ETFs could have cheaper costs and more liquidity than alternative gold investment options.

Gold Mutual Funds

Investors can purchase shares in a portfolio of gold-related assets, such as mining stocks, gold ETFs, and bullion, through gold mutual funds, which are investment vehicles. An experienced portfolio manager actively manages these funds to maximize profits while minimizing risks related to gold investments. Gold mutual funds are a popular option for individuals looking to diversify their portfolios or get exposure to the gold market since they can expose the precious metal without requiring physical ownership. Tocqueville Gold Fund (TGLDX), VanEck International Investors Gold Fund (INIVX), and Fidelity Select Gold Portfolio (FSAGX) are a few well-known gold mutual funds. 

Gold Futures Contracts

Investors usually speculate on the price of gold in the future via gold futures contracts, a financial derivative. These agreements are for purchasing or selling a specific quantity of gold. Futures contracts are traded on regulated markets like the Chicago Mercantile Exchange (CME). Traders and investors frequently use them to diversify portfolios, protect against inflation, and benefit from market volatility. Futures contracts do, however, also come with hazards, such as the potential for significant losses and margin calls. Only seasoned investors with a high-risk tolerance level ought to think about buying gold futures contracts.

Buy Sovereign Gold Bonds 

RBI issues sovereign gold bonds (SGBs), which let investors buy gold on paper. During particular times, SGBs can be acquired from approved banks or post offices and offer a fixed interest rate of 2.5 per cent annually. Like normal stocks, investors can trade SGBs on stock markets
 

 

Solid Gold vs Digital Gold

Aspect

Solid Gold

Digital Gold

Physical Form

Physical gold comprises coins, bars, or jewellery.

Electronic gold is represented by digital tokens or ETFs.

Storage

Requires secure storage facilities or personal safekeeping.

No physical storage is required; stored in digital wallets.

Accessibility

Physical gold may be difficult to access and transport.

Digital gold can be easily bought, sold, and transferred online

Liquidity

Physical gold may have limited liquidity and require additional fees to sell.

Digital gold can be sold and bought at market prices on major exchanges with low transaction costs.

Price Volatility

Physical gold may experience price volatility due to supply and demand factors.

Market forces influence digital gold prices and can also experience volatility.

Counterparty Risk

Physical gold ownership may be subject to counterfeiting or theft risks.

Digital gold ownership is subject to cyber risks such as hacking or fraud.

Investment Amounts

Physical gold may require significant capital outlay.

Digital gold allows for investment in smaller amounts.

Advantages and Disadvantages of Investing in Digital Gold

Advantages

Disadvantages

Ease of Accessibility: Digital gold can be easily bought, sold, and transferred online.

Cyber Risks such as hacking or fraud: Digital gold ownership is subject to cyber risks such as hacking or fraud, which can compromise the security of the Investment.

Lower Investment Amounts: Digital gold allows investors to buy and sell gold in smaller amounts, making it accessible to more investors.

Price Volatility: Digital gold prices can experience volatility.

Low Transaction Costs: Investing in digital gold has lower transaction costs than investing in physical gold.

No Regulatory Body: No regulatory body oversees digital gold, which can create uncertainties regarding its authenticity and storage.

Transparency in prices: Digital gold provides transparency regarding its prices and market trends, allowing investors to make informed decisions.

Lack of physical ownership and security: Digital gold does not offer physical ownership or security, which can concern some investors.

What Makes Investing in Digital Gold Attractive?

Purchasing digital gold is appealing for several reasons. It is easily accessible, enabling buyers and sellers of gold to transact online while remaining in the comfort of their homes. Additionally, because digital gold can be bought in smaller quantities, a wider spectrum of investors may afford it. Compared to investments in actual gold, it also provides cheaper transaction expenses. The transparency that digital gold offers in terms of its costs and market patterns enable investors to make wise choices. It provides benefits for diversification and can assist investors in distributing their risks among various assets.

Where Can You Buy Digital Gold in India?

In India, you may purchase digital gold via several online platforms, including Paytm, PhonePe, Google Pay, and several others. Additionally, you may buy it on the websites of stockbrokers and trading platforms that let you know how to invest in digital gold.

Taxation on Digital Gold & Physical Gold

In India, taxes on both physical and digital gold are the same. Both the short- and long-term capital gains tax rates apply to selling gold, and both are 3% (plus cess). However, compared to the five years needed for physical gold, the holding time for digital gold is only 
three years, making it eligible for long-term capital gains.

Conclusion

Cryptocurrencies are referred to as "digital gold" and have become an alternative investment choice for people looking to diversify their portfolios. They have some characteristics in common with physical gold, such as a restricted supply and a decentralized structure, but they also have particular dangers and uncertainties of their own. As with any investment, it is crucial to conduct in-depth research and comprehend the potential advantages and disadvantages before making a choice. 

FAQs

Is it safe to buy gold online?

Yes, buying gold online from reliable and trustworthy merchants is often secure. To avoid fraud, it is crucial to use care and conduct adequate research before purchasing. 

How can I buy gold digitally?

Through several internet portals that provide digital gold investment possibilities, gold can be bought digitally. These platforms include online stockbrokers, trading platforms that let investors buy and sell gold, and payment apps like Paytm, Google Pay, and PhonePe.

Is buying digital gold a good investment?

Purchasing digital gold can be a wise investment for investors. Accessibility, affordability, reduced transaction costs, and openness are just a few advantages it offers. However, investors should also consider any risks and disadvantages that can exist, such as the lack of physical possession and potential cybersecurity issues.

Is it safe to buy gold on Google Pay?

Buying gold via Google Pay is generally safe because the service employs advanced security measures to protect customer transactions. However, reading the terms and conditions before purchasing ensures you purchase gold from a dependable and trustworthy vendor.

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About the Author

Tanushree is a seasoned professional with 6 years of experience in the Fintech and Edtech industry.

Disclaimer

Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial. Also, The
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