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How To Invest In Gold? The Ultimate Guide for Beginners in Australia
Onyeka
2020-04-07 215

You may heard of investing in gold is a good idea. This article is going to teach you all about how to invest in gold in australia, and help you decide if it is the right for you.


Gold has historically been valuable because of its beautiful appearance leading to use in jewelry and in coins used for trade. It is also rare because it’s difficult to get out of the ground, and that scarcity made it valuable as a trading commodity.


As time went on, humans continued to use this precious metal as a way to facilitate trade, along with accumulating and storing wealth. This led to early paper currencies being backed by gold that could be exchanged for an amount of physical gold. 


This lasted for centuries until the link between gold and money was broken in the 20th century with the advent of centralized banking and fiat currencies.


Despite that schism, gold still remains popular as a form of investment.

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Why is Gold Popular?

The biggest demand for gold is the production of jewelry, followed by direct investment in gold, including coins, bullion (a bar or coin stamped with its value and purity), medals, and standard gold bars.


Gold is often viewed as a “safe” investment that some people consider to be valuable if paper money were to suddenly lose all its value. This is a key reason why the price of gold tends to go up when the value of other investments fall. 


Gold is also valuable as an industrial metal because it is a good conductor of electricity, and is also used to make dentistry items and technological gadgets. 

What Determines the Price of Gold?

Like any other commodity, gold trades based on supply and demand, and that interplay ultimately determines what the spot price of gold is at any given point.


Economic downturns usually see the price of gold rising as demand from investors increases. 


The supply of gold in the world is quite large but is often hard to extract. According to the World Gold Council, there are about 190,000 metric tons of gold being used above the ground with 54,000 metric tons located below the ground that can be mined using modern technology. 


Is It Still Worth Investing in Gold for 2020?


You may think of " should i invest in gold". In my opinion, gold is worth investing in the long run.


Many experts consider gold to be a volatile investment and advise to keep holdings at less than 10% of an overall investment portfolio. 


One of the best benefits of gold investing for new and experienced investors arises from the diversification it can provide to any investment portfolio. 


Many experts also advise buying small amounts of gold over a long period of time. Often the price of gold and gold-related stocks is correlated, meaning that the two rise and fall together. Since the results are best suited to long-term investment, most advisors recommend buying it over time to average the cost.


How To Invest in Gold in Australia? 9 Ways

There are several ways to invest in gold, depending on the amount an investor wishes to buy, investment experience and risk profile. 


✔️ Jewelry


Gold jewelry is easy to buy, but it has very high markups which often make it a poor option for gold investment. Pure gold is 24 karat (how purity is measured), however, a lot of jewelry can be much lower in terms of purity. Aside from a pure investment perspective, some people buy jewelry for its design, which may increase its resale value.


✔️ Bullion, bars, and coins


Many investors choose this option for owning physical gold, despite the markups that come with the work involved in turning raw gold into bars or coins. In addition to the cost markup, gold dealers also add their own sales markup to the price, making it a more expensive option. 

Another issue with physical gold is liquidating it, because some dealers may offer a price that's below the market spot price.


✔️ Gold certificates


Gold certificates are notes issued by a company that owns gold, giving an investor direct exposure without owning the physical asset.


The main issue with this form of gold investment is the trust factor. The certificates are as worthy as the company backing them. This is why The Perth Mint, backed by the government of Western Australia, is one of the most desirable options for gold certificates in the world. 


✔️ Exchange-traded funds


Investors that don't care about holding physical gold but wish to have direct exposure can opt for an exchange-traded fund (ETF) like SPDR Gold Shares. 


This fund purchases gold directly on behalf of its shareholders for a management fee, plus a commission. 


✔️ Futures contracts/CFDs


A futures or CFD contract for gold is an agreement between a buyer and a seller to exchange a specified amount of gold at a date in the future for a specified price. The value of the contract fluctuates as the price moves up and down, with the accounts of both the seller and buyer being adjusted accordingly. 


The use of leverage (i.e. credit) can magnify the profits and losses, making this a very risky way to invest for most beginners.


✔️ Gold mining stocks


Mining stocks are a way to invest in the gold industry, rather than the physical asset itself. Gains can be made from several ways: first in the increased value of gold (because the stock values go up accordingly), and also from increased production and business expansion.


There are still risks to owning gold mining stocks. Sometimes the company underperforms, the workers go on strike, and disasters like a mine collapse or gas leak can occur. These factors can cost lives and halt production, driving prices down in the aftermath.


✔️ Mining-focused ETFs


Low-cost index-based ETFs like VanEck Vectors Gold Miners ETF and VanEck Vectors Junior Gold Miners ETF are good options for anyone looking for a single investment that provides broadly diversified exposure. In addition to gold, both these options also have exposure to other metals.


✔️ Mutual funds


Mutual funds are great options for investors who want to own mining stocks over direct gold exposure. This time-saving option comes with a fee and saves hours of research, provided that the investor trusts that the fund managers invest wisely and profitably.


✔️ Streaming and royalty companies


Streaming and royalty companies provide miners with cash upfront in exchange for the right to buy gold for future reduced rates, allowing them to get paid in gold without going through the expense of running a mine.


For many investors, buying stock in these companies is a great option to invest in gold because the companies offer widely diversified portfolios, along with access to low commodity prices built into the contract. 


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Gold Investment Type Summary


 Investment Type

 Pros

 Cons

 Examples

 Physical Gold

  • Direct exposure

  • Physical ownership


  • Higher markups

  • Gold price change is the only upside

  • Storage concerns

  • May be difficult to liquidate


  • Coins

  • Bullion

  • Bars 

 Jewelry

  • Easy acquisition


  • High markup

  • Questionable resale value


  • Gold jewelry with 14k+ content


 Gold certificates


  • Direct exposure

  • No need to store the physical asset


  • Value depends on the company 

  • Mostly illiquid



  • Perth Mint Certificates


 Futures contracts/CFDs


  • Minimal investment capital required

  • Highly liquid



  • Indirect exposure

  • Highly leveraged

  • High risk


  • Chicago Mercantile Exchange


 Gold mining stocks



  • Upside potential from mine development

  • Tracks gold prices




  • Indirect exposure

  • Operating risks of mine

  • Exposure to different commodities


  • Barrick Gold (NYSE: ABX)

  • Goldcorp (NYSE: GG)

  • Newmont Goldcorp (NYSE: NEM)



 Gold ETFs


  • Direct gold exposure

  • Highly liquid


  • Fees

  • No upside beyond the change in gold price 



  • SPDR Gold Shares (NYSEMKT: GLD)


 Mutual Funds and ETFs Focused on Gold Mining



  • Investment Diversification

  • Upside potential from mine development

  • Usually tracks the price of gold


  • Indirect gold investment exposure

  • Operating risks of mine

  • Additional exposure to other commodities




  • Fidelity Select Gold Portfolio (NASDAQMUTFUND: FSAGX)

  • VanEck Vectors Gold Miners ETF (NYSEMKT: GDX)

  • VanEck Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ)

 Streaming and royalty

companies



  • Investment diversification

  • Investment upside from the development of the mine

  • Usually tracks the price of gold 

  • Consistently wide margins


  • Indirect exposure to gold 

  • Mine operating risks

  • Investment exposure to other commodities


  • Wheaton Precious Metals (NYSE: WPM)

  • Royal Gold (NASDAQ: RGLD)

  • Franco-Nevada  (NYSE: FNV)




What's the Best Way for a Beginner to Invest in Gold in Australia?

There is no best way to invest in gold because each option has its own trade-offs. Many advisors recommend the purchase of stock in streaming and royalty companies for most beginners, however, there are many other factors to consider (see tips below).


Like any other investment, there's no standard option for investing in gold, however, research into how the industry works and learning about the pros/cons of each type of investment will help you make the right decision.


10 Tips for Investing in Gold Wisely

There are many expert opinions throughout the investment world for how to invest in gold, how much to invest, and when. Here are our top 10 tips to help you make the best decision:


1. Purchase some physical gold and silver 


Gold functioned as money for 5000 years, and it was only in 1971 when the gold standard stopped being used. Having said that, experts recommend that you have some as an insurance against the crash of the monetary system.


2. Don’t invest solely in indirect ownership over the long term


Certain paper products do not guarantee that you actually own the gold and often include cash settlement clauses that will pay you out in cash instead of physical metals. In a harsh monetary crisis or war, this may cause an investment loss.


3. Ensure it is under your direct and unencumbered ownership


If you buy physical gold, experts recommend that you store it close to where you live in a jurisdiction that has strong private property rights so it cannot be pledged, hedged or leased out. 


4. Purchase only the most liquid coins and bars


Experts recommend that you invest in coins as much as possible because they are easier to use than an entire gold bar. Ensure that the coins are a legal tender with a low fabrication fee.


5. Build up stocks over time


Gold is a traditional store of value as well as monetary insurance that will help you build up savings over time. In hard times of war and famine when currencies lost their value, gold and silver were used to purchase homes and provide food for weeks. 


6. Avoid using credit and buy gold with savings


Experts recommend saving before investing so that any gold bought with savings is fully yours. This should apply to all types of investments.


7. Only invest money you don’t need for five years


According to some analysts, gold returns are best realized over long time frames, so investing all your money in gold right now may mean missed short-term investment opportunities. 


Since markets are volatile, they advise that you use gold investment as a security for the long term, and have some capital on hand to invest in current opportunities. 


8. Set short and long-term objectives


Experts recommend that you set objectives and review them often, avoiding any quick decisions that might compromise your overall strategy. 


9. Invest only what you can afford


Most investment advisors recommend the use of dollar-cost averaging to buy small amounts over time in order to spread the purchase cost and to build a sizeable position. 


10. Allocate Gold to 10-15% of Your Investment Portfolio


Analysts recommend investing no more than 10-15% of your investment portfolio to precious metals, including gold. The best portfolios, according to many experts, are diverse portfolios that are protected from any sharp fluctuations in the value of any one asset type.


A Final Word

There are several ways to invest in gold such as buying the actual metal, purchasing gold funds and buying gold options.


Many investors prefer investing in physical assets like gold coins, bars or bullion. Others prefer a more liquid and low-cost way to invest, like mutual funds and exchange-traded funds that invest in the shares of mining companies.


Advanced investors may trade gold futures or options. This is very risky and not suited for beginners.


Whatever form of gold investment you choose, you can rest assured that gold investment has been around for thousands of years and is unlikely to disappear anytime soon. So do your research, invest responsibly and invest wisely!



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