Recently, I was privileged to be given a tour of Gold Bullion Australia, located in Miami on the Gold Coast, of all places! If you’re like me, then you probably think of capital cities, bank vaults and the Perth Mint as the places where it all happens in the precious metals arena. Who knew I could try something so local?
It was pretty brilliant I must say to be able to get my hot little hands on a 1000g bar of gold and eye off the gorgeous ingots of silver and gold… sadly I didn’t get to hide any in the handbag and do a runner!
But when markets look like they may turn south and people traditionally flee to the perceived safety of gold and precious metals, I’m often asked… “How can I invest in Gold?” (Apparently, ‘try Tiffany’s is the wrong answer!’)
You might be surprised, that there’s actually up to 4 different ways that you can invest in precious metals!
Exchange Traded Funds (ETF’s)
Precious metal Exchange Traded Funds (ETFs) are the cheapest, easiest and most convenient way to buy and sell gold. Unlike physical gold however, there are a number of things to be aware of with ETF’s.
Firstly, you can expose yourself to counter-party risk and liquidity may be an issue, meaning you can’t sell out as quickly as you usually could. In short, when you buy an ETF, the metal you buy may not be held by the ETF provider, it’s held by a large global bank. Just a possibility to be aware of!
As gold production is primary, there are a selection of mining companies that explore and extract the glittering, precious metal from Mother Earth’s crust. By investing in these “Junior Miners” you are investing in gold indirectly. The price of shares in these companies will be affected by the mining stocks as well as many other factors such as the position of the mining company and markets in general.
Futures and options
Futures and options are vehicles known as derivatives which are available to investors via platforms or exchanges. A futures position can become a physical position in precious metals and they have a delivery mechanism for buyers and sellers. Options are like an insurance policy on price. Most use the recommendations of a reputable Stockbroker and/or their Adviser when looking at these style of investments.
Buying Physical Gold
There are many seasoned investors who have been long term loyal fans of physical gold; the real stuff! I’m kind of a fan of wearing it myself! (All donations graciously accepted!) They like to be able to hold a tangible asset with no third-party risk which has been a valuable form of currency for over 5,000 years. And getting your hot little hands on a 1kg bar is seriously a lot of fun – but may make some of the scenes in the Italian Job look a little less real than previously thought…
To Note ~
Gold does not replace income – that is the role of cash and fixed interest or even real estate – what it does do, is provide a non-correlating alternative to traditionally defensive assets. Unlike property, cash, stocks and bonds, gold is not sensitive to Macroeconomic factors such as inflation and interest rates – in fact, it usually performs better in a volatile market.
Physical gold can be more expensive than investing in an ETF, although since it is an internationally recognised and trusted form of exchange, the worldwide network of dealers can provide prices 24 hours a day and you can exchange gold for cash practically anywhere in the world.
What are the costs?
Dealers charge a premium on the world spot price of gold; there is a production cost depending on the type of product you purchase and there may also be delivery, storage and insurance costs.
If you can buy from a dealer closer to your location, you will also save on the cost of shipping. For precious metals, this cost can be significant due to their weight and value. (Wandering out of the vault with a backpack of gold bars isn’t great for the back!)
When it comes time to sell, the dealer will buy back at spot price less a premium. The dealer will want to see the physical product, so again it is best if your dealer is close by. Alternatively, you can store your precious metals with the dealer so you can buy and sell instantly with them. Buying bullion isn’t risk free, but then, there’s not much in life that truly is. Researching a reputable trader is imperative.
Have a chat to your financial adviser to see whether physical gold, silver, platinum or other investment options are worth a position in your portfolio.
And for those who want to know a little more, here’s an e-book put together by Gold Bullion Australia for your viewing pleasure called “Why Buy Gold.”