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What is investment gold? Simple explanation written by a gold expert

Published by Lars Mäki in category Articles on 19.07.2023
Gold price (XAU-SEK)
24424,40 SEK/oz
  
- 19,60 SEK
Silver price (XAG-SEK)
309,71 SEK/oz
  
- 1,45 SEK
Different types of gold bars

For most of human history, gold has been used as money. This is no accident. The yellow metal holds its value over the long term, and in modern economic history it has protected our purchasing power from crises and major market events.

Here we will take a closer look at what investment gold is and some things to remember when investing in gold. We will also discuss whether it is subject to VAT and how consumers can sell their coins or bars if they choose to do so.

What is investment gold? Definition and types

Metall används för att tillverka många olika produkter, som har sin egen tillgång och efterfrågan (med respektive prissättning) och behandlas olika i lagstiftningen. Det senare är av stor betydelse, vilket kommer att framgå tydligt.

See the full range of Tavex investment gold here!

Gold coins for investment

1 oz Somalisk Elefant Guldmynt - Afrikansk Fauna

To be treated as investment gold, a gold coin must:

  • Be minted (i.e. produced) after 1800;
  • Be or have been legal tender in the country of origin;
  • Have a purity of at least 0.900% (21.6 carats);
  • Be sold at a price that does not exceed the spot price of the gold contained in the coin by more than 80%.

Coins produced before 1800 are considered historical objects and cultural property. They can be traded like regular gold if they have the necessary documents as described in each country.

Given the above criteria, does this mean that a person can use an investment gold coin with a denomination of €100, (as for example in the case of the Austrian Philharmonic coin), to buy goods in the shop or to pay their taxes?

One troy ounce of gold Austrian Philharmonic Orchestra

Ett troy uns guld Österrikiska filharmoniska orkestern

According to the law, yes, although the value of the Philharmonic as investment gold is incomparably higher than as legal tender. At the time of writing, the price of the coin is almost SEK 21 500, and if used as a means of payment, goods and services can be purchased for as little as EUR 100.

Why should you invest in gold?

While people have different reasons for investing in gold, for many people gold investment is about preserving and protecting their wealth.

Similarly, many people choose gold to protect the rest of their portfolio from risk and to increase the diversity of their portfolio. Very few people would choose to invest all their money in gold because it is always advisable to create a balanced portfolio that includes different types of investments.

Many investors choose gold for that very reason, allowing them to diversify into different areas. This is said to be because the price of gold is usually negatively correlated to stock markets; gold often rises when other markets fall. This is why gold is traditionally seen as a ‘safe haven’ investment. In times of market volatility, when stocks and shares plummet, some of this decline is due to investors moving from ‘risky’ assets to the safe haven of gold.

Finally, some investors choose gold because of the possible financial returns, especially over a longer period of time. Simply put, if you buy it and hold it until the price goes up, you can sell it – hopefully at a profit.

Investment gold ingots or plates

To the extent that a gold bar represents a cast or minted quantity of gold, there are fewer requirements for it.

Investment gold bars PAMP Fortuna

Investment gold bar PAMP Fortuna

However, its purity must be at least 0.995% (23.88 carats). Weight, analysis, manufacturer and serial number must be indicated on it. The weight of investment stacks can vary widely, from 1 gram to 12.5 kilograms (400 troy ounces). The latter are standard in interbank payment and often appear in films.

Investment gold and VAT

EU countries do not charge value added tax (VAT) on investment gold. Under European law, it is exempt from the tax rate in the following situations:

  • on the supply of investment gold
  • the purchase of investment gold within the Community
  • Imports of investment gold.

The list of investment gold coins in the EU that are exempt from VAT is published annually in the Official Journal of the European Union. It is important to note that investment products made of other metals (silver, platinum, etc.) may be subject to VAT.

Many non-EU countries also do not charge VAT on investment gold. Among them is Serbia, which abolished VAT in 2018. Since then, the Central Bank of Serbia’s gold reserves have doubled.

Regardless of tax treatment, products that qualify as investment gold are globally recognisable, meaning they can generally be bought and sold at a clear price in advance. This is particularly true in the case of reputable traders.

Investment gold and preserving purchasing power

Because it is exempt from VAT, investment gold is the instrument that follows the spot price of gold very closely. It is also the asset that over the last five decades has maintained purchasing power very successfully over time.

Investment gold has various forms of demand. It is used as a reserve by commercial and central banks, which will soon be treated as a risk-free asset, by gold exchange-traded funds and as a hedge against crises and inflation by private individuals.

Gold’s increase in value over time

Guldpriset

The demand for gold has increased throughout history

Gold demand

Other gold products, although shaped like coins and bars, do not follow the spot price of the metal. Here are two examples:

Collector couns and gold bars

Collector coins and gold bars are two examples of gold products that do not follow the spot price of the metal. These can have a very high mark-up and in some cases are subject to VAT when the dealer’s margin exceeds 80% of the metal value in them. Outside collectors’ circles, they are generally sold as gold or silver scrap. The demand for gold bars has increased in recent years. Especially in times of uncertainty, the demand for gold increases.

Jewelery

They are hardly an investment because they include in their final price a premium for workmanship, which is roughly equal to the value of the precious metal, and the tax rate. Like collectibles, they are sold as gold scrap. Moreover, it is more difficult to verify the authenticity of gold jewellery compared to investment gold. Investing in gold is a form of diversification in an investment portfolio and can be seen as a form of insurance for troubled times.

What happens to my investment gold if the seller goes bankrupt?

Products that fall under the definition of investment gold are generally globally recognised. Even if the trader who bought the gold goes bankrupt, the owner can generally sell it worldwide.

Recognised gold dealers have publicly available and constantly updated ‘buy’ and and “sell” rates. In the case of Tavex, these change every 15 minutes to reflect changes in the global spot price of gold. This gives the investor clarity on what value they can get for their gold coin or bar.

How do you invest in gold?

There are several ways to invest in gold. You can buy and sell gold through CFD trading or invest in gold through ETFs on the stock market. Other ways to invest in gold include buying gold bars, jewellery or shares in gold mines. There are also many gold exchange-traded funds (ETFs) that allow you to invest money in the gold market. Each method comes with both opportunities and risks. Learn more about investing in gold here!

ETFs are exchange-traded funds that allow you to invest money in the gold market. Gold exchange-traded funds (ETFs) are easy to buy and sell on the stock market and give you exposure to the price of gold. ETFs are also easy to trade and have low fees3.

Buying gold bars is another way to invest in gold. You can buy gold bars through companies that specialise in selling gold and gold bars such as Tavex! What is investment gold? Simple explanation written by a gold expert

Gold price (XAU-SEK)
24424,40 SEK/oz
  
- 19,60 SEK
Silver price (XAG-SEK)
309,71 SEK/oz
  
- 1,45 SEK

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