How to invest in gold? The investor's guide | Tavex

From ancient civilisations to the modern era, gold has been a reliable means of payment in the world. Today, investors mainly buy gold as an insurance policy against political unrest and inflation, as it has a low correlation with other assets (such as shares and property). In addition, many prominent investment advisors recommend including a portion of the portfolio in commodities, including gold, to reduce overall portfolio risk.

See the full range of Tavex investment gold here!

There are various ways to invest in gold, such as buying gold bars, investing in equity funds, trading futures contracts, buying shares in mining companies or investing in jewellery. With the exception of a few options, only gold bars, futures contracts and some specialised funds offer a direct opportunity to invest in gold. Other forms of investment derive their value from different sources.

Gold bars

Gold bars are perhaps the best known form of direct ownership of gold. Many people think of large gold bars as those held at Fort Knox or in large banks. In fact, gold bullion can be in any form of pure (or nearly pure) gold that has been certified for its weight and purity. This includes coins, bars and other forms of gold in various sizes. For security reasons, it is common for gold bars to also have a serial number.

As an example, we show above a smaller gold bar of one oz (31.1 grams) with a James Bond motif.

Although heavy gold bars are an impressive sight, their large size (up to 400 troy ounces) makes them difficult to trade and therefore expensive to buy and sell. For example, if you own a large gold ingot worth 1 mil. SEK, it may be difficult to sell it and it is not possible to cut off a smaller part of it as it would then be sold as gold scrap.

On the other hand, smaller gold bars and gold coins are much more liquid and are quite common among gold sellers.

Gold coins

Gold coins have been produced in large quantities by major mints around the world for decades. Investors usually buy coins from private dealers at a premium of around 1% to 5% over the underlying gold value, but in recent years the premium has increased to around 10% in some cases.

The advantages of gold coins are:

• Their prices are available in global financial publications.
• Gold coins are often minted in smaller sizes (in ounces or less), making them a more convenient way to invest in gold compared to the larger bars.
• Reliable dealers can be easily found and are located in many major cities.
• Older, rare gold coins have what is known as numismatic or ‘collector’ value in addition to the underlying value of the gold. To invest solely in gold, you should focus on coins that are in general circulation and let the collectors take care of the rare coins.
• Some of the most popular gold coins include the South African Krugerrand, the American Eagle and the Canadian Maple Leaf.

The main problems with gold coins are that the costs of storage and insurance, as well as the relatively large mark-up from the dealer, hinder the potential for profit. For example, if you own 500,000 SEK in gold, is it safe enough to keep the gold in a small safe? Many people might have to rent a safe deposit box, which entails costs.

In addition, buying gold coins is a direct investment in gold, and any change in the price of gold will proportionally affect the value of your holdings. Other gold investments, such as equity funds, can be made in smaller amounts than gold coins and do not have as much direct price exposure as gold coins do.

Gold jewelery

You can also choose to buy gold that you can wear – or that someone else has worn but has been damaged – in the form of gold jewellery. However, investing in gold jewellery carries many risks that investing in pure gold does not.

You need to be careful with jewellery purchases because not all second-hand jewellery is sold by reliable dealers. Authenticity not only matters to you – it will also be important to the person you are trying to sell the jewellery to. It is therefore important that you buy investment jewellery from a reliable dealer and obtain as much documentation as possible.

Want to know more about how to tell if your gold is genuine? Click here!

Secondly, you will pay a certain mark-up cost based on which company designed and manufactured the jewellery. This can be anywhere from 20% to more than three times the raw value of the precious metal.

You should also be aware of the jewellery’s purity, or the percentage of gold it contains. Gold content is calculated by carat, with 24 carats being 100% gold. Lower purity reduces the melting value of the jewellery, i.e. the raw value of the jewellery’s components if they are melted into pure gold.

Tavex can always value your gold and give you an objective and competitive quote!

Invest in gold by buying shares in gold mining companies

Investing in the shares of companies that mine, refine and trade gold is a much more direct proposition than buying physical gold. Since this involves buying shares in gold mining companies, you can invest through your brokerage account.

Source

Some of the most popular stocks in this sector include:

• Newmont Corp (NEM). Newmont is the world’s largest gold mining company, headquartered in Colorado. They have mining operations in North and South America and Africa.
• Barrick Gold Corp (GOLD). This gold mining giant is headquartered in Toronto and operates in 13 countries worldwide.
• Franco-Nevada Corp (FNV). Franco-Nevada does not own any gold mines. Instead, it buys the rights to royalties from other gold mining companies.

However, keep in mind that shares in gold mining companies are correlated to gold prices, but are also based on fundamentals related to each company’s current profitability and costs. This means that investing in individual gold mining companies has similar risks to investing in any other stock. A single stock can experience a certain level of volatility and does not provide the same security as diversified funds.

Invest in gold ETFs and gold share funds

Investing in gold ETFs and equity funds that focus on gold can give you exposure to gold’s long-term stability while offering greater liquidity than physical gold and greater diversification than individual gold stocks.

There are different types of gold-related funds. Some are passively managed index funds that track industry trends or the price of gold using futures or options.

For example, the SPDR Gold Shares ETF (GLD) holds physical gold and depository receipts, and its price tracks the price of physical gold. The VanEck Vectors Gold Miners ETF (GDX), on the other hand, is a passively managed fund that tracks a basket of shares in gold mining and refining companies.

Gold stock funds like Franklin Templeton’s Gold and Precious Metals Fund are actively managed by professional investors. These funds aim to outperform the returns of passively managed index funds. To compensate, they charge relatively high management fees.

Just remember that, like gold stocks, you are not buying gold directly, but paper theoretically backed by debt or equity of mining companies or futures and options contracts for physical gold. This means that the value of gold stock funds and ETFs does not necessarily reflect the market price of gold, and these investments cannot perform in the same way as physical gold.

Frequently asked questions about investing in gold

Why is gold a good investment?

Gold is an attractive investment for several reasons. One of the main advantages is their protection against inflation. Precious metals, such as gold and silver, cannot be printed in the same way as various currencies and are therefore a limited resource. Historically, gold has acted as a store of value for thousands of years, maintaining its purchasing power over time.

Another advantage of owning gold is that there is no credit risk. When you own gold, you have a physical asset that gives you full control over your investment. This differs from investments involving debt or financial instruments where there is a risk that the borrower may not be able to repay.

Gold also has a status symbol. They have an aura of nobility and prestige that makes them attractive to many investors. In addition, gold offers high liquidity, which means they can be easily bought and sold on the market. There is a high demand for gold, silver and platinum, both from private investors and industry, making it easy to convert them into cash when needed.

Another advantage of investing in gold is that it can protect and diversify an investment portfolio. Gold tends to have a low or even negative correlation with other assets such as shares, bonds and property. This means that when other assets may not be performing well, gold can act as a counterweight and help reduce the risks in the portfolio.

Finally, gold is relatively easy to buy and sell. There is a wide range of dealers and trading platforms specialising in different precious metals, making it easy for investors to access the market. Whether in the form of physical gold and silver or through precious metal-based financial instruments such as ETFs and mutual funds, there are many options to choose from when it comes to investing in precious metals.

What has been the historical performance of gold?

The average annual return averages 11% according to the World Gold Council over the last 50 years (Jan 1971 – Dec 2021) since the Bretton Woods system was suspended. Returns have been significantly higher during periods of high inflation. In 12 of the last 50 years, inflation has been higher than 5%, and the average annual return in those years has been above 20%.

Why should you buy gold through Tavex?

Tavex has a AAA credit rating with Bisnode, which only 3% of Swedish companies have, and offers the best prices, range and customer service in the market for precious metals. In addition, we strive to have the best prices on the market, so we price match if the customer finds a better price from a competitor.

Operating in the market since 2005, Tavex has extensive knowledge and experience in precious metals trading and is a very safe and reliable option. We also offer our customers free consultation with our gold experts.

See our full range of investment gold here!