Q1. Why Commodity is an asset class?
Commodities are fundamentally different from stocks and bonds. While they are an investable assets, they are not capital assets i.e. Commodities do not generate a stream of dividends, interest payments, or other periodic income. Rather, commodities are valued because they can be directly or indirectly consumed or generate capital gains through price appreciation.
As an asset class, commodities have historically displayed a low or negative correlation with stocks and bonds, and provide protection in the event of geopolitical or inflationary shocks.
Majority of commodities are consumer goods that are being consumed by emerging markets that are experiencing exponential population growth, and the demand for these goods is likely to grow. The world population is currently sitting just around seven billion, but by 2050, that figure is expected to increase to an astonishing 10 billion, meaning that there will be a lot more mouths to feed and much higher demand for these commodities. Hence, investments in commodities offer a play on population growth and the expected surge in global demand.
As a result, these unique properties of commodities can make them an attractive addition to an investor portfolio.
Q2. Why invest in Gold? What are the advantages of investing in Gold?
Gold is the most popular investment avenue when it comes to commodities. It is considered a foundation asset within any long term savings or investment portfolio.
For centuries, particularly during times of financial stress and the resulting ‘flight to quality’, investors have sought to protect their capital in assets that offer safer stores of value. A potent wealth preserver, gold’s stability remains as compelling as ever for today’s investor.
As one of the few financial assets that do not rely on an issuer’s promise to pay, gold offers refuge from widespread default risk. It offers investors insurance against extreme movements in the value of other asset classes.
Gold has proven to be a multi-purpose asset class with number of compelling reasons underpinning the widespread renewal of interest in gold as an asset class:
Diversifying your portfolio can offer added protection against fluctuations in the value of any single asset or group of assets. Risk factors that may affect the gold price are quite different in nature from those that affect other assets. Statistically, portfolios containing gold are generally more robust, and are less volatile than those that do not hold gold.
Hedge against Inflation and Currency Devaluation:
Gold’s value, in terms of the real goods and services that it can buy, has remained remarkably stable for centuries. In contrast, the purchasing power of many currencies has generally declined, due for the most part to growing money supply. Hence investors often rely on gold to counter the effects of inflation. Gold is also employed as a hedge against fluctuations in currencies, particularly the US dollar. If the world’s main trading currency appreciates, the dollar gold price generally falls. On the other hand, a fall in the dollar relative to the other main currencies produces a rise in the gold price. For this reason, gold has consistently proved to be one of the most effective assets in protecting against dollar weakness.
Gold is significantly less volatile than most commodities and many equity indices. It tends to behave more like a currency. Assets with low volatility will help to reduce overall risk in your portfolio, adding a beneficial effect on expected returns. Gold also helps to manage risk more effectively by protecting against infrequent or unlikely but consequential negative events.
Demand and Supply:
Demand for gold has shown sustained growth recently, due at least in part to rising income levels in key markets. These supply and demand factors have laid foundations for gold’s most positive outlook in over a quarter of a century. The price of gold tracks the shifting balance of supply and demand. Long lead times in gold mining mean production of gold is relatively inelastic, regardless of increases in demand. That’s why the rally in the gold price since 2001 has not engendered a meaningful increase in gold production levels.
Q3. What are the Key Risk Factors affecting prices of Gold?
Like other asset classes, investing in Commodities such as Gold carries its own set of risks. Following are some of the Key Risk Factors affecting international price of Gold:
Gold tends to do well during times of global economic slowdown (in particular, in the US and Eurozone area), since it is considered a safe haven. During times of economic boom, gold’s performance can be lackluster.
Gold prices are typically denominated in US dollars and this implies that the exposure gained from buying/selling gold is influenced by changes in the exchange rate of US dollars. Since Gold has often been associated as a safe store of value, strengthening of US dollar has historically resulted in decrease (generally) in the value of Gold.
Central Bank Buying/Selling:
Central Banks are one of the major holders of Gold as a reserve asset. Thus, buying/selling of Gold by the Central Bank affects the price of Gold.
Increase in interest rates in the global markets (generally) tends to have downward pressure on the price of Gold, since opportunity cost of holding Gold increases.
Decrease in Inflationary pressures (globally) tends to drive people more towards other assets and hence affect the price of gold. During time of rising inflation, investors’ real returns (Inflation adjusted returns) are low, i.e. there is disincentive to hold asset in bond/cash because of low returns; thus investors prefer holding their assets in Gold.
Any new discovery of Gold (in “substantial” quantity) without a sufficient increase in demand can also result in downward pressure on the price of Gold – due to Global Demand / Supply imbalance.
Q4. Is Gold investment Shariah Compliant?
In case of deliverable of physical commodities as well as cash settled no deliverable (Non interest bearing) Contracts, Investment is Shariah Compliant.
Q5. Can I take delivery of the gold or any other deliverable commodity?
We gives you complete piece of mind by keeping your gold or any other deliverable commodity investment in electronic contracts and In case of delivery of physical gold and other concerned Contracts.
Q6. How can I invest in PMEX Listed Commodities?
All you need to do is to fill in account opening form and send it to email@example.com along with pre-requisite documentation (as specified in the form) to our Operations Office.
You can also submit application form online and our customer care executives will call you back on your mobile phone to assist you with your queries.
Once your payment is realized in the bank account, you will be receiving PMEX credentials to access your account within few days, at your registered email address. You may view your account balance position, ledger and trade details on client portal on submission of your User ID and Password. PMEX informs you by email and SMS (if specified) all trades in your account.
Q7. What is the Exchange operational timing for trading?
Monday to Friday – 5:00 A.M. to 2:00 A.M.
Q8. When will my UIN issued and I can Trade or Invest?
Within 48 hrs of receipt of credit in AHC account, UIN is forwarded via email to account holder.
Q9. How do you compare investing with Zara Commodities to other forms of investing in Gold such as Purchasing Gold Jewelry?
PMEX supports investors who can encash Gold/Silver/Oil during 21 hours of PMEX Operations. Investments are secured in electronic form or physical GOLD is kept in PMEX custody. Security risk is prevalent during commuting to/from jewelry shop.
Q10. Who should trade/invest?
Commodity Trading is ideal for investors looking to:
- Buy Gold Jewelry for their children’s wedding or a special occasion in the long term
- Ensure maximum safety of their gold holdings (Gold in paper-form / physical form)
- Invest in Gold but does not have lump-sum amount to invest in or wary of investing due to short term volatility in Gold. You can invest small sum of money on a regular basis (such as on a monthly basis) to gradually build-up your holdings in Gold
- Looking to diversify their portfolio away from stocks and bonds
- Bullish on prospective of Gold in the medium term but does want to own physical gold
Q11. What is the Fee Structure?
You may access commission sheet from “How to Invest” tab. Commission starts from Rs.25 per Gold Troy Ounce.
Q12. What is the procedure for selling gold investments? How long does it take to withdraw my money?
All investments can be sold at prevailing prices on PMEX. Limit orders for sell can be placed with PMEX. Within 72 Hours of request receipt, withdrawals are completed.
Q13. How can I invest regularly? Are any investment plans offered?
You can do Investment / trading by submitting post-dated cheques.
Q14. Can existing investors of Gold Physical switch/convert to Silver, Oil or Gold Futures?
Yes existing investors can easily invest /trade and switch /convert from Physical Gold to Gold, Silver or Oil Futures.
Q15. What are the modes of payment?
You can invest by submitting duly-filled in Application Form along with the following payment mode:
- Pay Order