This edition’s guest columnist is Jordan Eliseo, Chief Economist from ABC Bullion, Australia’s oldest and largest independent bullion dealer.
Investing in gold has come under criticism of late due to a significant correction in the first half of 2013. Despite the negative press, gold, which comfortably outperformed the share market over the last decade, remains a popular and growing component of many investors’ portfolio, including SMSF Trustees.
Gold and other precious metals are often used to balance out the risk of an investor’s portfolio. They are known to keep their value better than other assets during times of economic uncertainty and periods of rising inflation. Typically, when other asset classes are struggling, investors turn to gold, driving its price up.
On the other hand, when other assets are booming, precious metals tend to underperform.
Whilst gold doesn’t pay a yield, the potential for capital gain in low interest rate economic environments like the one we’re in today is what draws investors to it.
Considerations for buying gold
Physical gold or paper gold.
There are two common ways to invest in gold; buying physical gold bullion or buying a gold Exchange Traded Fund (ETF).
ETFs are ‘paper gold.” An ETF is a kind of unit investment security that is traded on the stock market and closely tracks the value of a commodity such as gold or silver, or an index such as the ASX200. It gives you exposure to the gold price, but it does not eliminate third party risk, typically can’t be redeemed in physical metal, and an ETF will also attract an annual management fee, which erodes the value of your investment.
Gold bullion or physical gold is real, tangible gold. It comes in a variety of sizes and brands (or hallmarks) all of which will affect its resale value.
Choosing a Dealer
It’s important to research which gold dealer you buy your gold (or silver) from. A reputable dealer should be able to provide an assessment that certifies the purity and value of the gold bar that you are purchasing. While some investors may prefer a bricks and mortar shopfront, many online dealers also provide a stable and secure service.
It is also important to have the serial number of the gold bar recorded to your account. Gold bars commonly have four marks to identify each unique bar. A good dealer will assist you with this process in an open and transparent manner.
Ensuring your dealer offers competitive premiums is also important. You can’t actually buy gold at the ‘spot price’, so ensuring you aren’t being charged too high a premium to purchase your gold is important.
All gold bars are branded. Gold from all reputable brands will be 99.99% pure. This is the minimum purity for gold that you should accept for investment purchases.
Buying a reputable brand is important because if you want to sell your gold back at a later date, you will find this very easy if you have a recognised brand (hallmark) stamped on your bullion bar.
While it may be tempting to keep your gold at home so that you can look at it, secure storage is important. Precious metals are compact, valuable, and easy to re-sell. Unfortunately, these qualities are also desirable to criminals. You will need to have a plan for secure storage and insurance
Gold vaults (such as private vaulting company Custodian Vaults) typically have the most up to date technology and protocols to protect your gold and offer insurance included as part of their service offering.
Ultimately, when choosing a dealer, you should ensure you use one that offers low premiums, access to a variety of precious metal products, and who has a full range of storage and insurance options which make the purchase and storage process seamless for you as a customer. This is particularly important for SMSF investors who have reporting obligations to adhere to in their role as trustee.
If you are interested in investing in gold, it is important to do your own research to ensure you are comfortable with the volatility, and speak with your financial advisor, to ensure that it is appropriate to your personal circumstances.