Investing in gold: an interesting financial investment?

According to a survey conducted in 2019, gold is a safe haven for 73% of French people. It is therefore particularly attractive in a context of economic crisis. But, in reality, is it really worth investing in gold for your portfolio? Find out now.

Investing in gold, an attractive investment

Gold is the fourth preferred savings solution by the French, behind investment in stone, life insurance and depositing money in a bank account. Gold appeals to all social classes and across all ages investing in gold. However, the most likely to see gold as a safe haven are the wealthiest households (79% responded positively) and the oldest (82%). But this perception is also shared by the less well-off (69%) and by those under 50 (66%).

Also according to the survey conducted, 83% of French people are concerned about the current economic situation and 78% think that the country's situation is worsening. In view of the international context, the concern does not calm down.

The French are traditionally attached to investing in gold. They sometimes pass them on from generation to generation. Currently, there are around 3,000 tons of gold among the French, whether it is ingots or coins. They also own jewelry and forged items.

To acquire gold, a few hundred euros may suffice. For example, on July 23, 2019, a napoleon (6.45 g) was worth € 245, a 50 gram ingot was worth € 2,060 and a one kilogram ingot was worth € 41,140.

A reassuring financial investment

When you hold gold, it doesn't earn you anything as long as you keep it. It is therefore not an investment that will allow you to obtain additional income.

However, gold reassures its holders thanks to its high liquidity. Indeed, it is relatively easy to resell. In addition, it provides protection against inflation with an evolution more or less correlated with the evolution of the cost of living. Thus, it functions in a way like a form of insurance: in the event of a hard blow, you can quickly release funds.

Investment in gold

If you want to invest in gold, you have two options: physical gold and paper gold.

Physical gold

The physical gold has various types of investments: bars, ingots, wafers and coins. To be considered as investments, they must have a purity of at least 995 thousandths and a weight greater than one gram. It should be noted that the greater the unit weight, the more attractive the cost per gram. It makes more sense to buy an ingot of one kilo than 10 ingots of 100 grams each.

For coins, you can invest in coins minted after 1800 and whose purity is at least 900 thousandths. The most commonly chosen coin in France is the 20 Franc Napoléon. You may also be interested in modern pieces. Indeed, some countries still mint gold coins such as Canada with the Maple Leaf or South Africa with the Krugerrand. The latter are the most liquid because they are recognized the world over and are legal tender since you can "in theory" pay for your purchases with these coins in their countries of origin.

So you buy gold and then you keep it. It will eventually bring you cash only at the time of a potential resale.

Paper gold

The paper gold is a financial investment in gold, but you do not physically hold gold. This includes shares in gold mines, SICAVs specializing in gold, as well as certificates called 100% Gold or 100% Quanto Gold which are offered by some banks. These products reflect the evolution of the gold price, but they do not offer a capital guarantee. These products are not always correlated with a physical gold stock, it is necessary to analyze the proposal which is made to you as well as the manager.

For equities, be careful to take certain risks into account. For example, take a close look at the state of gold reserves the company is drawing on, as well as the currency risk of the country where the company is located.

The returns of investing in gold

Variable returns

The returns from investing in gold vary widely. Indeed, its course varies daily. We must therefore be vigilant. Between 2000 and 2012, the price of gold rose sharply: it was multiplied by 5. This could happen again, but this phenomenon is quite difficult to predict.

For example, over a large part of 2018, the price of gold fell by 14%. Then, between November 2018 and February 2019, it increased by 12%. It then went down again.

Calculating the value of gold

The price per ounce of gold (31.10 grams) is that used for investments in paper gold. It is set by the London Bullion Market Association (LBMA). The LBMA controls the quotation of precious metals on the main markets of the planet. This listing takes place twice a day, at 10:30 am and 5:30 pm French time. It should be noted that historically the price of gold evolves inversely with the rate of the dollar, excluding macroeconomic events. Investing in gold can thus be tricky for a European accustomed to investing in euros.

The valuation of gold coins is less framed than that of paper gold. Since 2004, there is no longer an official gold quotation in France. Thus, the prices are calculated by the main French wholesaler, CP OR.

It includes in this price a "premium" which corresponds to the difference between the price of the coin and its weight in gold. That is, it is the difference between what the coins should be worth if it was sold for the fair price of its weight in gold and what it is really worth. The size of this bonus varies. It depends in particular on the rarity of the coin, the difficulty of manufacture and its popularity with investors. So, it is rather advisable to invest in coins that have a low premium so as not to overpay your investment.

Where to buy gold?

To acquire physical gold, you must sign a purchase order with your banker. A commission of 1.5% to 2.5% then applies. Many more or less serious brokers also have shops in the big cities.

To acquire paper gold, you can go through a financial intermediary or through a broker.

Taxation of physical gold has become less advantageous

The 2018 finance law introduced an increase in the taxation of precious metals. Thus, the flat-rate tax that applies on resale has increased from 10.5% to 11.5%, whether you realize a capital gain or not. However, there is no purchase tax.

If you still have proof of ownership which indicates the purchase price as well as the date, you can choose to be taxed on the real capital gain. Thus, the capital gain on the sale is taxed at 36.2%, with a discount of 5% after 2 years of ownership.

Some tips to keep in mind when investing in physical gold

If you are looking to invest in physical gold, here are some tips to keep in mind:

• Opt for coins or ingots in perfect condition
• Prefer parts with the highest degree of purity possible
• Choose coins minted by major money hotels
• Select a trading house that has been recognized for several decades
• Buy ingots or coins in Paris rather than in the provinces. Indeed, for lack of sufficient supply, prices outside Paris are often 10% higher.
• Favor transactions on the internet, on recognized and secure sites. Commissions are lower there than in physical stores.

Verdict: should you invest in gold?

Thus, gold is a safe haven. It is a tool for diversifying your portfolio, useful in times of crisis since it is decor related from the financial markets and tends to increase in value in the event of an extraordinary economic situation (recession or strong growth marked by strong inflation).

But be careful not to bet all of your savings on gold because it is an investment that does not earn you anything throughout the duration of the holding. Also, its price fluctuates in a way that is difficult to predict. The risk of loss and profitability are therefore difficult to anticipate.