5 ways to invest in gold. Is it worth keeping money in gold
Many capital holders and financial experts believe that investing in gold will preserve and protect monetary assets from depreciation. With the adoption of the Bretton Woods system of monetary and trade settlements, which replaced the system based on the “gold standard”, the countries’ need for gold as the main source of reserve formation has fallen sharply. Currently, not every economically developed country, whose currency belongs to the world, has a gold reserve comparable to the amount of money. Against the background of economic instability and falling world currency rates, gold is increasingly being used as an investment asset.
5 ways to invest in gold
Several types of investments in gold are available to investors. Let’s denote 5 main options.
Method No. 1. Gold bars
A real product that you can hold in your hands and with which you can earn money. There are really negative nuances:
- The owner of the bullion will have to pay personal income tax, exemption from which is possible only after a three-year period of ownership of the asset (previously, VAT was also charged from the purchase).
- The costs associated with the acquisition are not always covered by the profit from the sale. Usually banks sell bullion more expensive, and buy at a reduced price.
- You will have to pay for storing gold bars in a bank, and if you store gold outside the bank, it is possible that if you intend to sell it, you will have to order and pay for an examination.
- Careless storage can lead to defects, which will lead to a decrease in the price, in which case investments in gold will be unprofitable.
Method #2. Investment Gold Coins
In numismatics, such products are not of particular value, but in the field of investment they have occupied their niche. Initially, when selling coins, VAT was not charged, so buying them was more profitable than buying bullion.
It is noteworthy that the value of coins minted annually by the Central Bank exceeds the value of bullion. It is possible to sell such an asset more expensive, but the requirements for its condition are higher: to sell a coin at a good price, its condition must be ideal. To extract maximum profit, experts recommend owning an asset for at least 5 years. It is believed that the value of coins increases by 13-18% per year.
Method No. 3. OMS
This abbreviation hides impersonal metal accounts, which are accounts that reflect some precious metal (not necessarily gold). The account contains information only about the mass of the metal, which is why it is called impersonal.
By analogy with a deposit, an MMI may have a limited validity period or be indefinite. In the first case, the investor receives income from accrued interest, which is calculated in grams. In the second case, the client can store the metal for as long as he wants and close the account at a convenient time by paying VAT. Some banks even practice issuing metal in physical form.
Method No. 4. Trading on the stock exchange
With the help of a broker, an investor can purchase gold and shares of companies engaged in the extraction of precious metal. When buying and selling, the minimum volume of metal is 10 grams. Many people prefer this option because:
- trading can be carried out without leaving home;
- an investor can use leverage;
- the owner of the metal does not need to take care of the storage and examination of the metal, as well as pay VAT;
- an investor can earn not only on the increase in the exchange rate, but also on its fall.
There are also disadvantages. The first is the lack of guarantees, since the gold held in the brokerage account is not insured. The second is associated with the fact that it is extremely difficult for private investors to make a significant profit. This is mostly possible for large stock market players.
Method No. 5. Mutual funds
You can invest in gold by buying a share in a mutual investment fund. In this case, the investor does nothing by himself. All transactions are made by the management company, which distributes income based on the results. The advantages of this method include:
- higher profitability in comparison with deposits, including due to portfolio diversification;
- the possibility of obtaining tax benefits when owning a share for more than 3 years;
- no need to trade independently.
Among the disadvantages, we note the lack of insurance, the impossibility of obtaining gold in physical form, as well as the fact that when selling a share you will have to pay personal income tax.
How the prices of precious metals change
Many believe that precious metals are one of the most reliable and stable assets, and it is profitable to keep money in gold, partly this is so. However, like any other asset, gold is sensitive to micro and macroeconomic changes. The price of the metal is influenced by factors such as the dollar exchange rate, investor expectations, and the Central Bank rate.
It is generally believed that in times of crisis, the price of precious metals increases. So, for example, it was in the pandemic year 2020, when the price of gold increased by 40%. It is difficult to predict with absolute probability a further price increase, but it is quite realistic to protect your savings from inflation if you invest in gold for 5-10 years.
Pros and cons of investing in gold
The advantages of this type of investment include:
- high liquidity;
- stability (the price is slowly, but constantly growing);
- protection against inflation;
- diversification (gold is an ideal diversifier);
- constant demand.
Those who have decided to keep money in gold should also know the disadvantages of this type of investment. Of the disadvantages , we will highlight:
- low profitability in the short term;
- increased spread (the difference between the purchase and sale price);
- the inability to predict the price movement.
Is it profitable to invest in gold today
Investing all savings only in gold is definitely unprofitable. Now there is a certain excitement, many are buying gold at already decent prices. However, it is not a fact that in a year or two the price will continue to rise. It is unlikely that the holders of such an asset will completely go bankrupt, but still gold is more suitable for saving, not for multiplying funds. Precious metals can be included in the investment portfolio along with stocks, bonds and other instruments.
Where and how to buy gold for investment
Depending on the option of investing in precious metals, the latter is purchased:
- In credit institutions, specialized stores (dealers) or private owners. I must say that the latter option is extremely risky, since the authenticity of the gold offered by private traders cannot be verified without an expert examination, and such costs money. It is most reliable to buy bullion in banks. They are ideal in weight and appearance, and, in addition, they have a certificate. Gold coins can be purchased in similar ways.
- In credit institutions, in addition to physical gold in the form of bars or coins, it is possible to open an impersonal metal account on which the purchased metal will be stored.
- To buy gold or shares of gold mining companies on the stock exchange, you need to find a reliable intermediary and open a brokerage account.
In any of the cases described above, the future gold holder will need start-up capital, and if he intends to trade on the stock exchange, at least basic investment skills. Coins, bullion and OMS are the simplest and safest ways to invest in gold, so it is better for a non–professional investor to start with them.
Published: 6 September, 2022