Investing in gold, does it still pay?
Few investments have rivalled gold in popularity throughout history. Here is what you need to know if you are thinking about buying or investing in gold.
Key points
Gold is seen as a hedge against inflation and a store of value through thick and thin.
Gold prices can also be volatile.
You can buy and invest in physical gold through gold bullion, coins, investing in stocks, ETFs or jewellery.
Throughout history, few investments have rivalled gold in popularity as a hedge against turbulence in world affairs, inflation, and recessions.
Not surprisingly, many people have turned to gold as a haven for their investments.
So, if you are thinking about investing in gold, here is what you need to know.
Gold is valued by its purity and weight, which is then multiplied by the gold spot price to calculate the value.
The ABC Bullion website updates gold prices in real time, refreshing every five minutes, allowing buyers and sellers the ability to check the market.
Pure gold is 24 carats. Carats measure the proportion of gold relative to other metals. The number of carats is often stamped on the gold, ranging from zero to 24.
The higher the carat, the higher the proportion of gold compared to other metals, such as copper, silver, or palladium.
Despite Australia using the metric system, the weight of gold bullions is still measures in ounces. But the ounce measurement is not an imperial ounce, it is a ‘Troy’ ounce.
An imperial ounce is 28.35 grams, while a troy ounce is 31.1 grams – making a troy ounce heavier by almost 10 per cent.
ABC Bullion says that most bullion dealers assume people know the difference between troy and imperial ounces, and therefore will often only show prices per ounce.
So, it is important to know the correct weight measurements if you are interested in investing in gold.
The gold coin market
There is a strong international market in historic and unique coins as collectors' items, these coins are typically sold at a premium compared to their gold content. The 1933 “Double Eagle”, one of the last gold coins minted in the US, sold at auction in 2021 for $18.9 million – equivalent to more than $29 million Australian dollars. It has 0.9675 troy oz of gold.
You can buy physical gold in the form of bullion, coins or jewellery from mints, precious metal dealers and banks.
Bullion bars: Gold bullion bars can range in weight from one gram to over 10 kilograms. The bars are stamped with the purity level and weight.
Coins: The Royal Australian Mint is the sole producer of Australia’s circulating coins. Investment coins are an inexpensive and an effortless way of entering the gold markets. Gold coins typically have a lower gold content than bullion bars, making it a cheaper investment option.
Jewellery: Like gold coins, jewellery is marked up compared to the content of the gold. This mark-up is upwards of 20 per cent and can often be far higher depending on the manufacturer. Jewellery also declines in value upon purchase, making it a less stable investment. If you are looking to invest in jewellery, keep any sales documentation and proof of value as it will make it easier to resell in the future.
Gold stock: You can buy gold and commodity funds: specialist commodities, mining, and exchange-traded funds (ETFs) can provide you with exposure to gold. These range from funds investing in gold mining companies, to ETFs that directly track the price of gold and other precious metals. You can also buy shares in gold mining companies.
As with other assets, any profit or capital gain made from investing in gold, whether directly or indirectly, will be potentially subject to capital gains tax (CGT). You may have to pay capital gains tax if your investment grade bullion has a greater value at the time of sale compared to the value at the time of purchase.
As with other investments, your investment in gold can go down as well as up, and you may not get your money back. If you are unsure as to the best option for your individual circumstances, seek financial advice.
For further reading: Fool.com.au, Finder.com.au and Forbes
All insights and information provided should be considered general advice for educational purposes only. As we are unaware of your personal circumstances, the information in this article should not be misconstrued as personalised financial advice. We recommend seeking advice from a qualified financial professional before making any major financial decisions.
