How to invest in physical gold?
A novice or inexperienced investor in the world of finance can become overwhelmed by the many options offered to him, after making the decision to invest in gold. "If I only wanted to invest in goldco review , what is all this? What is the best option", you might ask,
For this reason, the objective of this post is to explain in the simplest way possible what the different physical gold investment formulas consist of and what their main advantages and disadvantages are. Then, the decision will be in the hands of the investor.
Physical Gold vs. Paper Gold
First of all, it is necessary to clarify that, when talking about investing in gold, we may be referring to very different things. Expressions such as "physical gold" and "paper gold" are commonly used by investment media. We will explain what each one is.
When we talk about physical gold, we are referring to investment gold in the form of bars, investment coins (also called "bullions") and, to a lesser extent, jewelry. It is gold that the investor can hold in his hands, touch and appreciate its brilliance.
In contrast to this physical gold, the evolution of financial technology in recent years has created a new category: the so-called "paper gold". Under this term (which in many cases is used in a pejorative way), a whole series of financial products are encompassed that have gold as an underlying or reference, but which do not actually reach investors in physical form.
There is an increasingly wide range of these products, generated by financial engineering with the aim of attracting investors who are reluctant to gold in its physical form: ETFs (Exchange-Traded Funds), investment funds, certificates, warrants, futures contracts, digital gold or even the shares of mining companies that extract the metal... These are financial products in which gold plays the role of the reference or underlying index and that we will explain in detail in a future post.
Ways to invest in physical gold
There are at least four main ways to invest in physical gold: bullion, investment coins or bullion, jewelry and purchase plans.
1. Gold bars
The image of a bar is the first thing that comes to mind when we talk about investing in gold. It is its most characteristic form, which has been mythologized for years in film and television.
Gold bars have multiple advantages: being considered as investment gold, they are exempt from VAT in the European Union ; they are usually of high purity (.999 or .9999); they are the most direct way to have exposure to the gold market; due to its manufacturing process, the premiums paid on the price of the metal are very small; there are numerous sizes; they never lose their value, no matter how many years pass; and its liquidity, in case of sale, is practically immediate.
Its multiplicity of formats is one of its great strengths, since it allows investment to be adapted to different pockets and even makes the portfolio more flexible, with partial sales depending on needs. Ingots of weights ranging from one gram to 12.4 kilos (the 400-ounce banked ingots, which are housed in the vaults of the banks) are manufactured.
2. Investment coins or bullion
Another way to invest in physical gold is through the acquisition of investment coins or bullion. As we have already seen in another post on this blog, the bullion or investment currency is a piece that is intended, as its name suggests, to serve as an investment object. In other words, the important thing about it is the amount of precious metal it contains and its purity level, rather than the possible numismatic value it could have based on its design, the year of issue or other factors.
Because the objective is to serve as an investment, these coins have the metal they are made of, its purity and weight, normally expressed in troy ounces (31.10 grams), and reflected on their reverse.
On the other hand, all these data are not reflected in the circulating coins, since they appear in the minting laws of the country that has issued them.
Among the advantages of investing in physical gold through investment currencies is the flexibility that this entails, since most of the bullions on the market offer fractions of an ounce, up to a minimum of 1/10 oz. That is, just over three grams, which makes them accessible to the most modest investors.
Their format is also an advantage when it comes to storing them, since they can be stacked, stored in tubes, and albums..., with the advantage that this entails.
For those who want something more than a simple piece of precious metal, these coins have some attractive and classic designs that, although they do not usually change every year (with exceptions such as the Chinese Panda), they do undergo slight modifications that increase their interest from the beginning. Collecting point of view.
Lastly, another advantage is the flexibility of having your investment distributed in small pieces, easily portable in case of need and payable at any time, since they have the backing of accredited international mints. In fact, many German citizens often invest in gold coins as a formula to supplement their pension.
And we must not forget either that, being minted in investment gold, they are also exempt from VAT in the countries of the European Union.
Among the drawbacks of this type of investment is the fact that the price of these pieces includes a higher premium than in the case of ingots, through which the mints pass on the costs of design, minting and transport to the buyer.
3. Gold jewelry
Although it may seem that gold jewelry is a luxury object and, to a certain extent, artistic, the truth is that it can also be considered as investment gold. In Eastern cultures such as China or India (which, significantly, are the world's two largest consumers of gold), the precious metal is not only a luxury item, but for many citizens it is the only way to save and invest part of their money economic surplus, to have a backup for when bad times come.
This is what happens, for example, in the rural areas of India, where the lack of access to banking services and the lack of services such as medicine or insurance forces the inhabitants of these regions to invest part of what they obtain from the sale of their harvests in gold jewelry. For this reason, factors such as the level of rainfall in the monsoon season can determine the level of demand or influence the local price of gold in India.
Returning to investment in jewelry, among its advantages is the versatility of these pieces, which can be worn on special occasions and not just be locked in a safe or vault.
However, its disadvantages are greater compared to ingots and investment coins since, as they are not considered investment gold, they are subject to VAT , which makes their price more expensive.
In addition, the jewels are rarely made of pure gold, a metal that, by itself, is too fragile and has to be alloyed with others to increase its resistance. In general, the gold used in jewelry is usually between 14 and 18 carats (that is, between 58.8 and 75% pure). This affects the sale price.
Another disadvantage is the difficulty of making the investment liquid in case of need, since it is more difficult to sell a jewel, which has an artistic component for which a significant premium has been paid, than an ingot or coin. The price that will be obtained for it will always tend to fall, since only its pure metal content will be valued.
4. Gold purchase plans
A fourth formula for investing in gold is the purchase plans for this metal. It is an unprecedented formula in Spain until it was introduced in our country by SEMPI Gold Spain.
It consists of scheduled purchases of gold by the client, by means of plans with different terms, which are extremely advantageous for him, since it is the company that is in charge of managing them, with greater negotiating capacity with the refineries than if made directly by the client.
At the end of the term, the client gets more grams of gold for his money and, in addition, the company offers enormous flexibility to investors: resume their investment, get the money generated or receive the gold that has been acquired with their investment.