How and where to buy gold

Paper and electronic money is a modern phenomenon. On the other hand, mankind has already used gold as a tool for storing value for several millennia. Compared to other metals, gold does not rust, and has limited and relatively hard-to-obtain reserves (unlike, say, silver, which is a much cheaper to produce and more widely available metal). Therefore, it is impossible to rapidly increase the total amount of gold in the world.

A common reason for investing in gold is the idea that the price of gold rises in line with inflation, but this is not always the case. A statistically more unambiguous connection of gold prices is with the interest rates set by national central banks - when rates rise, the price of gold (often) falls. A secondary implication of this commitment is that gold is a good investment to protect against an economic crisis (when central banks cut interest rates). Such a connection can be clearly observed in the graph, which shows the changes in US stock and gold prices over the last 30 years - when the stock price falls significantly, the gold price is stable or rising.



As a result, even today, investors often choose gold as a crisis reserve. It is not correct to look at gold as an investment - it does not bring dividends or profits - only storage costs. Gold is rather a protection against the inflation of money issued by countries (in the long term), a means of payment for apocalypse scenarios and a way to maintain non-electronic savings (off-grid). Accordingly, if there is a desire to keep something in the safe, then gold, in our opinion, is more rational than a currency that is gradually being eaten away by inflation. On the other hand, due to the fact that the value of gold usually increases when the value of other investments (for example, shares) decreases - by holding it in your portfolio, you can "even out" your return and reduce the fluctuation of your investment values. However, at the same time, it is important to consider that in the long term the value of gold is unlikely to grow as quickly as investments in stocks or bonds, as shown in the graph of the change in the value of $100 over the past 30 years:


In this article, we will look at several ways in which you can invest in gold and what practical considerations you should face.

1. Buy physical gold bars or coins. Gold bars and coins have standardized sizes and weights. Each product also has its own manufacturer. The brands of several gold bullion producers (such as Valcambi, Credit Suisse, Perth Mint and Royal Mint) are widely recognized around the world, which means that they can be more easily sold in other parts of the world. One simple way to choose a gold product to buy is to find the one with the best liquidity and the lowest bid/ask spread. Accordingly, if immediately after purchase you would like to sell your gold product, then the spread is how much in terms of percentage you would immediately lose. Generally, the smallest difference between the bid and ask price is the troy ounce (31 gram) weight of gold bars. For example, the ounce Valcambi bar offered by Tavex has a spread of 2-3%, while the 5 gram bar has a spread of 15%. For gold coins, the bid/ask spread is mostly more than 5%. Accordingly, here is also the first recommendation - buy a Tavex ounce gold bar. One ounce is also quite practical in size - slightly larger than a €2 coin. For comparison, one kilogram of gold is slightly smaller than an iPhone 14, but it is difficult to break it into pieces to, for example, sell in parts.

When buying gold, you receive a certificate of ownership in return, which is also a useful proof of tax payment to the SRS, if the precious metal is sold at a profit in the future (the state is entitled to a 20% tax on such profit). Purchased gold can be stored under the bed, in your safe (used by most hoarders) or in a bank safe. There is another solution - to buy gold in foreign stores that offer to transport the purchased product and store it in safes in different countries of the world on your behalf, for example in Singapore, USA or New Zealand. Such a service, of course, costs extra. A few more useful facts about buying gold: (1) when taking gold out of the country worth more than EUR 10,000, it must be declared at customs; (2) when buying gold in cash for an amount up to EUR 3,000, the seller can issue a check without the buyer's data.

2. Buy funds that hold gold reserves . So that you don't have to take care of buying and storing gold yourself, a simpler option is to buy shares in funds that hold physical gold reserves for fund investors. Such an investment is also simpler from the point of view that it can be done more gradually (you do not need to buy an ounce or a 100g gold bar) and it is easier to realize or turn it into money. At the same time, of course, the feeling of having a physical safety buffer next to you disappears. Therefore, this investment is suitable depending on what you want to buy gold for. Among the funds, such a service is offered, for example, by the WisdomTree Physical Gold fund, which can be purchased in EUR currency on both the German and Italian stock exchanges. The fund's annual management fee is 0.39% per year. Cryptocurrency lovers can also invest in the cryptocurrency PAX Gold, whose value is tied to the price of an ounce of gold. According to the issuers of this cryptocurrency, all cryptocurrency released is backed by gold reserves held in a vault in London.

3. Buy shares of gold mining companies . Another promising way beyond buying physical gold is to buy shares of gold mining companies, such as the Ishares Gold Producers index fund, which aggregates investments in 59 companies. The fund's annual management costs are 0.55%. Of course, buying individual shares of gold mining companies is also an option. The largest listed companies in this area are Newmont and Barrick Gold. Both of these companies are also listed on German stock exchanges, so they can also be purchased in EUR currency. Shares in gold mining companies mostly fluctuate with gold prices, but unlike physical gold bars in a safe (resulting in storage costs), they pay dividends (yield income).

4. Buy digital (paper) gold. There are a number of platforms, including Revolut and Paysera, that offer to buy a synthetic financial instrument whose value is tied to the price of gold on the stock exchange. Usually we are talking about XAU - the price of one troy ounce. It should be remembered that in such a case no real gold is being bought and the security of the investment is as great as the security of the broker/dealer himself. Often such investments are also not protected by the national deposit guarantee scheme.

In summary, there are a number of ways to buy gold, but the main thing is to understand why you are doing it - what risk/concern such an investment eliminates. Our conclusion: gold can be useful in a "catastrophe" scenario, but if it doesn't happen - in the long term, income-bearing assets (stocks, bonds) are better.