Table of contents:
- Is it worth investing in gold
- What investments in gold can be
- What cannot be considered an investment in gold
2023 Author: Malcolm Clapton | [email protected]. Last modified: 2023-07-28 10:38
Let's look at the pros and cons of six ways to invest in precious metal.
Is it worth investing in gold
Investing in gold is a conservative way to invest money. In the long term, this precious metal usually rises in value. This can be seen in the graph of changes in the cost of one gram of refined gold, which is compiled according to the Central Bank data for 2008–2020.
However, it should be borne in mind that the chart reflects the dynamics in rubles, while in dollars the picture will be somewhat different. Because the price of gold in rubles may rise, but a simultaneous change in the exchange rate can radically change the situation, both by increasing income and reducing it to nothing.
It is also important to understand that in the case of investing in gold, we are not talking about five or seven years, but about decades. Explosive growth, especially in the short term, usually cannot be counted on.
Gold is considered a defensive asset that aims to reduce overall portfolio volatility. But don't expect guaranteed income. Gold is an asset that does not generate profits, so you can only make money on it if the price changes. Thus, there is a risk that quotes will decline and you will have to see a loss in this position for several years.
Evgeny Marchenko Director of E. M. FINANCE
According to Stanislav Duzhinsky, an analyst with Home Credit Bank, gold is traditionally a defensive asset, the demand and value of which grows during periods when the market is in turmoil. The rest of the time, investors prefer other instruments.
For example, in February 2020, a troy ounce (31.1 gram) cost about $ 1,600. After that, against the backdrop of the coronavirus pandemic and the instability of the global financial market caused by it, the price of gold grew for several months until it peaked in August - $ 2,070 per ounce.
Therefore, guided by the rule “buy low, sell high”, it makes sense to invest in gold during periods when the markets are relatively calm in order to sell it in unstable times.
In the near future, as the expert notes, as the world economy recovers, a further decline in the value of gold can be expected, so now is not the best time for such an investment.
Nevertheless, buying gold is a perfectly suitable option for balancing an investment portfolio for those who build it for the long term. This can be a part of 5-15% of the portfolio.
What investments in gold can be
This is the most obvious way when it comes to investing in gold. You are literally buying ingots - yellow bricks familiar to many from adventure films.
Where to buy
Gold bars can be bought at bank branches, specialized companies or private individuals. The latter must be done with extreme caution. If you decide, an expert should check the gold for authenticity. It would also be nice to get a certificate that will certify the origin of the ingot, and documents confirming its purchase.
Pros of gold bars
- This is a tactile investment option. Securities in a brokerage account are virtual, and you can touch the gold bar to make sure you have it.
- The entry threshold is quite low. Bars come in sizes from one gram, so literally everyone can afford to buy some gold.
Cons of gold bars
- The ingots must be kept somewhere. You can, of course, put them in your nightstand at home and forget about them. But it should be borne in mind that inaccurate storage runs the risk of reducing the value of gold. So it is better to keep all the labels and documents in order to sell it later at a bargain price. Therefore, many people keep precious metals in a safe deposit box, and this costs money.
- When buying gold, you will have to pay 20% value added tax - literally overpaying this money in excess of the real price.
- Ingots can be stolen.
- The difference between the cost of buying and selling is quite large. For example, here is the rate for the beginning of March 2021, which was offered by Sberbank.
Is it worth investing
According to Igor Fainman, an expert in personal finance and investment management, due to VAT and additional costs associated with the purchase and storage of gold bars, this is not the most profitable option.
How much does gold need to rise in price to meet your expectations? Mostly very wealthy people invest in physical bullion, who can afford not to count their profitability, but are only concerned about saving billions.
Depersonalized metal account (OMS)
This is a variant of a bank account, only there are not rubles or dollars on it, but virtual gold that you buy. Accordingly, your income will depend on price fluctuations.
Where to open
Banks are engaged in this, and the whole procedure as a whole differs little from opening a regular account.
The advantages of compulsory medical insurance
- No VAT.
- No need to worry about storing gold.
- Simple account opening procedure.
- You don't have to look for a buyer for the bullion - you just sell the virtual gold to the bank and collect the money at the exchange rate.
Cons of compulsory medical insurance
- This is virtual gold that is not backed up by physical gold. If something happens, you can't just pick up your bars and leave.
- Depersonalized metal accounts are not protected by the Deposit Insurance Agency. If the bank has problems, you will lose money.
- The OMS has a bank commission, which you will have to pay in any case - it does not matter whether you received income or not.
- There is a tangible difference between the buying and selling prices. For example, here is what Sberbank offered on March 9, 2021.
Is it worth investing
If we weigh the pros and cons, it turns out that this is the easiest option for investing in gold, but far from the most profitable result.
Everything here is clear from the name - these are coins that are made of gold. They are investment and memorable. The first are such an equivalent of an ingot, and in this case the weight matters. The latter can already be of collectible value, that is, in some situations, they can be sold at much more expensive value by weight. But the procedure will be somewhat more complicated - you need to look for numismatists who are interested in coins.
Where to buy
In banks, specialized organizations or with hands. In order not to become a victim of scammers, it is better to involve an expert when dealing with individuals.
Pros of gold coins
- Like bullion, you can touch them and understand what the money is spent on.
- If you expect to sell them in decades, you can significantly increase your investment.
- When buying investment coins, you do not need to pay VAT.
Cons of gold coins
- When buying collectible coins, you must pay VAT.
- Collectible coins are not easy to sell.
- Coins must be stored somewhere safely, and very carefully. Damage can significantly reduce their cost.
Is it worth investing
Investing in coins is only worth investing in if you are willing to do so for a very long time. It is easier to invest in investment coins, but collectible coins can potentially bring more profit. But at the same time it is necessary to buy exactly those that will be in demand by numismatists in decades. So you need to be ready to dive into the topic.
An ETF is an exchange-traded investment fund that can be purchased on an exchange. The ETF portfolio is formed without your participation, but you can buy yourself a piece and become a co-owner of it. In gold funds, the portfolio is formed using a physical precious metal. Accordingly, the share price duplicates changes in the gold price.
Where can I buy
ETF shares are bought on the stock market. This will require a brokerage or individual investment account.
The most famous global funds are SPDR Gold Shares (GLD) and iShares Gold Trust (IAU). They both physically own real gold. In Russia, for example, there is a FinEx Physically Gold ETF (FXGD). Since January 2021, it has been stored in gold bars. There is also VTB - Gold Fund. Exchange”(VTBG). Until recently, the underlying asset was the already familiar SPDR Gold Shares, and since November 2020, this is gold with physical storage.
Stanislav Magera financial advisor
Pros of a gold ETF
- Just invest, no need to worry about storage.
- ETFs are traded on the stock markets like ordinary securities, which means that they are easy to not only buy but also sell.
Cons of a gold ETF
- It is required to open a brokerage or individual investment account. The broker will take a commission for this.
- The fund also takes a commission for managing the ETF.
Is it worth investing
According to Igor Fainman, one cannot count on a fixed income from such investments. But there is an opportunity to protect their savings from inflation and receive income when the value of gold rises.
Golden mutual fund
The meaning of a mutual investment fund (MIF) is exactly the same as that of an ETF. The management company forms a portfolio by purchasing gold in it, and you can buy a share in a mutual fund and become its co-owner.
The pros and cons are similar to ETFs. Unless you have to open a brokerage account, and the commission will have to be paid to the management company.
Gold mining stocks
By purchasing such securities, you are not investing directly in gold. Rather, you expect that its miners will be economically successful. The share price, however, is largely dependent on the price of gold.
Where can I buy
Like any other stock, on the exchanges. The largest companies are Polyus, Polymetal and Seligdar. Their shares are available on the Moscow Stock Exchange.
Pros of Buying Shares of Gold Mining Companies
- It's easy to invest money, the mechanism is clear.
- If a company pays dividends, you can count on them.
Cons of Buying Shares of Gold Mining Companies
You need to open a brokerage or individual investment account. The broker will take a commission for this
Is it worth investing
According to Stanislav Magera, investments in the gold mining business can bring income. But there are additional downside risks to stocks stemming from the problems of the business itself, even if the gold price is okay.
What cannot be considered an investment in gold
Buying jewelry is not an investment at all.
The price includes the work of a jeweler, which sometimes reaches 80% of the cost of the product. And they will buy them from you at a price per gram. So earrings and bracelets need to be bought not to preserve capital, but for the soul.
The exception may be rare collectible jewelry, but you will not find them in a regular jewelry store.
Options and Futures
These derivatives have little to do with investing in gold. Rather, we are talking about speculation related to the price of this precious metal. Due to this, they can bring increased profitability, but risks also entail increased ones.
These tools are only suitable for experienced investors. If you are just starting to invest and someone offers you one of these options, then before you agree, you should study the issue as carefully as possible.
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