Bullion & Commodities — Gold, Silver and Beyond
Physical gold, ETFs, Sovereign Gold Bonds, digital gold and silver — which form makes sense, what each really costs, how it's taxed, and how much belongs in a portfolio.
Indian households hold more gold than anyone else on earth — but most of it sits as jewellery, which is the most expensive way to own the metal. Gold will not out-earn equity over decades, and it isn't meant to. Its job is insurance: it tends to rise when the rupee weakens and when the world panics, exactly when your stocks are falling. This guide covers which form of bullion to own, what each one costs you in charges and tax, and where to stop when it comes to other commodities.
Why gold belongs in a portfolio — and why only a little
Gold produces nothing. No interest, no dividend, no profit. Its price rises only because someone else wants it more than you do. That makes it a poor engine for wealth — and a genuinely useful shock absorber, because the Indian gold price is the global dollar price multiplied by USD/INR. When the rupee slides or global markets seize up, gold typically rises.
- •Currency hedge — a falling rupee lifts the domestic gold price even if global gold is flat.
- •Crisis insurance — gold rose in 2008, in March 2020, and through the 2022 and 2025 geopolitical shocks while equity fell.
- •No cash flow — so it can't compound; treat it as ballast, not as a goal-funding asset.
| Period | Gold (INR) CAGR | Nifty 50 TRI CAGR |
|---|---|---|
| Last 5 years | ~14% | ~17% |
| Last 10 years | ~11% | ~13% |
| Last 20 years | ~12% | ~13% |
Gold has kept pace with inflation and occasionally with equity — but with long flat stretches in between (2013–2018 was almost zero).
A practical allocation
5–10% of your investment portfolio in gold is enough (up to 10–12% including silver). Don't count family jewellery — that's consumption, not an allocation.
Five ways to own gold — side by side
| Form | Cost of owning | Purity / safety | Liquidity | Extra return |
|---|---|---|---|---|
| Jewellery | 8–25% making + 3% GST | HUID hallmark mandatory | Sold at a discount | None |
| Coins / bars | 2–8% premium + 3% GST | Good; keep the invoice | Depends on jeweller/bank | None |
| Gold ETF | 0.4–0.8% p.a. + brokerage | Held in demat, no theft risk | Very high (exchange) | None |
| Gold fund-of-fund | 0.5–1.0% p.a. | No demat needed, SIP possible | T+1 to T+2 | None |
| Sovereign Gold Bond | Zero holding cost | Government of India backed | 8-yr term, exit from yr 5 | 2.5% p.a. interest |
Fresh SGB tranches have not been issued regularly since 2025, but older series still trade on NSE and BSE. Volumes are thin, so use limit orders — and occasionally you can pick them up below the underlying gold value, which quietly improves the return.
Digital gold is not regulated
The 'digital gold' sold inside payment apps sits outside SEBI and RBI oversight — you're trusting the vaulting company, and the buy/sell spread runs 3–6%. Fine for ₹500 experiments; use an exchange-traded fund or an SGB for a real allocation.
What jewellery actually costs you
Assume 22K gold at ₹6,000/gram and a 20-gram necklace with a 12% making charge.
| Line item | Amount |
|---|---|
| Metal value (20 g) | ₹1,20,000 |
| Making charge @12% | ₹14,400 |
| GST @3% | ₹4,032 |
| Total paid | ₹1,38,432 |
| Resale value the same day (making + GST not recovered) | ≈ ₹1,15,000 |
Roughly 17% of your money disappears on day one. That's the price of a wearable object, not an investment.
Before you buy physical
Insist on the six-digit HUID hallmark, a GST invoice showing making charges separately, and the buy-back policy in writing. Bank-sold coins usually cannot be sold back to the bank at all.
Silver — higher octane, industrial demand
Silver is half precious metal, half industrial input: solar panels, EVs and electronics consume most of the annual supply. That gives it sharper rallies than gold and sharper drawdowns — roughly 1.5x gold's volatility.
- •Silver ETFs (available in India since 2022) avoid the bulk, storage and purity problems of physical silver.
- •Physical silver is heavy, rarely hallmarked, and resells at a wide discount.
- •Keep silver to 2–3% of the portfolio, on top of gold rather than instead of it.
Other commodities — crude, base metals, agri
MCX lists futures on crude oil, copper, zinc, natural gas and several agricultural products. These are leveraged, expiry-dated contracts: you can be right about the direction and still lose money because the timing was wrong or the contract rolled at a worse price.
That's trading, not investing
Commodity futures exist so farmers, refiners and manufacturers can hedge price risk. They are not long-term wealth-building assets. For a retail investor, stopping at gold and silver ETFs is the right answer.
Taxation (FY 2025-26)
| Form | Holding period | Tax |
|---|---|---|
| Physical gold / silver | More than 24 months | 12.5% LTCG, no indexation |
| Physical gold / silver | 24 months or less | Slab rate |
| Gold / silver ETF | More than 12 months | 12.5% LTCG |
| Gold / silver ETF | 12 months or less | Slab rate |
| SGB held to maturity | 8 years | Capital gain fully exempt |
| SGB — 2.5% interest | — | Taxable at slab rate |
Cash purchases of ₹2 lakh or more are barred under Section 269ST, and PAN is required above ₹2 lakh. Keep invoices — without a cost record, computing capital gains later becomes guesswork.
How to actually build the allocation
- 1Decide the target: 5–10% gold, optionally 2–3% silver, of total investments.
- 2Pick the vehicle: a gold ETF if you have a demat account, a gold fund-of-fund if you don't (it allows SIPs).
- 3Check older SGB series on the exchange — if one trades near or below gold value with 3+ years to maturity, it is the most tax-efficient option available.
- 4Buy in instalments over 6–12 months rather than in one lump after a rally.
- 5Rebalance once a year: if gold has run up past your target, trim back into equity or debt.
The rebalancing bonus
Rebalancing is where gold earns its keep. Selling gold after a crisis rally to buy cheap equity is what converts 'insurance' into actual returns.
Common mistakes to avoid
Counting jewellery as an investment
Making charges plus GST take 12–28% up front and the jeweller deducts again on resale. Wear jewellery because you want to wear it; invest through ETFs or SGBs.
Losing the invoice and hallmark
Without an HUID hallmark and a bill, purity gets disputed at resale and you have no cost proof for capital-gains computation.
Raising gold to 25–30% after a rally
Gold moves in bursts and then goes flat for years. Adding at the top of a rally is the most common error — hold the 5–10% target and rebalance annually instead.
Large sums in unregulated digital gold
No SEBI or RBI oversight and a 3–6% spread. Exchange-traded funds cost a fraction of that and can be sold instantly.
Borrowing to buy bullion
A gold loan costs 9–15% a year while gold pays nothing. Leveraged bullion is a bet, not an allocation.
Your action checklist
- Set the target: 5–10% gold, 2–3% silver at most, of total investments.
- Choose a gold ETF (demat) or gold fund-of-fund (SIP-friendly) as the core holding.
- Scan older SGB series on NSE/BSE for tax-free maturity at a fair price; use limit orders.
- If buying physical, verify the HUID hallmark and keep the GST invoice.
- Avoid cash purchases; give PAN above ₹2 lakh.
- Review the allocation once a year and rebalance back to target.