Gold is an extremely reliable and highly demanded asset. Investing in it is easy and you can do it in different ways. We tell you how to invest in gold and why.
Gold has been and remains one of the most popular investments in any situation in the economy, especially during a crisis. This is an ideal defensive asset that saves investors' money from devaluation, inflation and market collapse.
Interest in gold is now high: many are sure that in the coming years, prices for the precious metal will rise. According to Diego Parrilla, Quadriga Igneo fund manager, over the next three to five years, gold prices will rise to $3-5 thousand per ounce from the current levels of $1.7-1.8 thousand. He explains this by the expected flow of money due to consequences of too loose monetary policy. And Goldman Sachs expects gold to reach $2.3 thousand, with growth starting as early as 2021.
Gold prices are slightly volatile, but usually rise in times of crisis, as investors hope to at least maintain the value of their investments with this precious metal. Due to the pandemic-induced collapse in global markets, lower interest rates and reduced production in 2020, gold prices soared by more than 40% and remained at $1,900 an ounce. In August 2020, the price peaked at $2,075 per ounce.
In 2021, metal prices fell by 16% compared to August last year due to the gradual recovery of savings and the spread of vaccines. At the moment, the price of gold is at the level of $1794 per ounce. However, expectations of a possible next collapse of the market, which may occur due to its overheating due to excessive government stimulus to the economy, once again draw investors' attention to this protective asset.
Once upon a time, gold could only be bought in physical form, but now investing in it is much easier than it seems. In this text, we will discuss the seven main ways to invest in gold, as well as the advantages and disadvantages of each of them.
1. Gold bars
The first way that comes to mind. Bars can be purchased from banks - as with currencies, each of them has its own rates for buying and selling gold. You can also buy an ingot on the stock exchange, but the procedure for withdrawing the metal from the market is complicated and inconvenient. There is also the option of buying from individuals, but this is extremely risky.
Pros: this is real physical gold that you can touch and store in your safe, in a bank cell and in general anywhere. And the entry threshold here is quite small: you can buy an ingot weighing only one gram. As of May 23, 2020, a gram of gold cost ₽4,232 at Sberbank.
Cons: firstly, you have to pay 20% VAT - you need to be a big fan of gold and buy it for a long time to put up with such losses. Secondly, there is the problem of storage: you can’t just put an ingot on a shelf. Just one scratch reduces the cost of the ingot - and in case of severe damage, it will not be bought at all later.
Gold has been and remains one of the most popular investments in any situation in the economy, especially during a crisis. This is an ideal defensive asset that saves investors' money from devaluation, inflation and market collapse.
Interest in gold is now high: many are sure that in the coming years, prices for the precious metal will rise. According to Diego Parrilla, Quadriga Igneo fund manager, over the next three to five years, gold prices will rise to $3-5 thousand per ounce from the current levels of $1.7-1.8 thousand. He explains this by the expected flow of money due to consequences of too loose monetary policy. And Goldman Sachs expects gold to reach $2.3 thousand, with growth starting as early as 2021.
Gold prices are slightly volatile, but usually rise in times of crisis, as investors hope to at least maintain the value of their investments with this precious metal. Due to the pandemic-induced collapse in global markets, lower interest rates and reduced production in 2020, gold prices soared by more than 40% and remained at $1,900 an ounce. In August 2020, the price peaked at $2,075 per ounce.
In 2021, metal prices fell by 16% compared to August last year due to the gradual recovery of savings and the spread of vaccines. At the moment, the price of gold is at the level of $1794 per ounce. However, expectations of a possible next collapse of the market, which may occur due to its overheating due to excessive government stimulus to the economy, once again draw investors' attention to this protective asset.
Once upon a time, gold could only be bought in physical form, but now investing in it is much easier than it seems. In this text, we will discuss the seven main ways to invest in gold, as well as the advantages and disadvantages of each of them.
1. Gold bars
The first way that comes to mind. Bars can be purchased from banks - as with currencies, each of them has its own rates for buying and selling gold. You can also buy an ingot on the stock exchange, but the procedure for withdrawing the metal from the market is complicated and inconvenient. There is also the option of buying from individuals, but this is extremely risky.
Pros: this is real physical gold that you can touch and store in your safe, in a bank cell and in general anywhere. And the entry threshold here is quite small: you can buy an ingot weighing only one gram. As of May 23, 2020, a gram of gold cost ₽4,232 at Sberbank.
Cons: firstly, you have to pay 20% VAT - you need to be a big fan of gold and buy it for a long time to put up with such losses. Secondly, there is the problem of storage: you can’t just put an ingot on a shelf. Just one scratch reduces the cost of the ingot - and in case of severe damage, it will not be bought at all later.
You can take the ingot to the bank, but he will charge a fee for renting the cell. And the bank will remove a considerable commission on the resale of the ingot. And the last thing is large spreads, that is, the difference between the purchase and sale prices. It can vary by 5-10%.
2. Gold bullion coins
They can be bought at banks, numismatic stores and at auctions. Coin prices are determined by the value of gold on the London ICE Exchange. They usually look nice and can be a cool gift.
Pros: As with bullion, this is tangible gold. But you do not need to pay VAT when buying coins. Some rare series have additional numismatic value.
Cons: the same as with bullion - large spreads and the need for even more careful storage. Scratches and damages lower the price of coins even more than in the case of bullion. You can sell coins only at a big discount to the exchange price of gold - therefore, income from such investments can be received only after five to ten years.
3. Gold ETFs
ETF (Exchange Traded Fund) is an investment fund whose shares are traded on the stock exchange. Its quotes are tied to the assets in the portfolio. For gold ETFs, the only asset is gold - therefore, their shares completely repeat the movements of the market price of the metal.
There is only one gold ETF on the Moscow Exchange - FXGD, whose shares can be purchased for rubles. At the same time, its currency is the US dollar, which also affects the value of the fund. One FXGD ETF is equivalent to 0.22 grams of gold. Shares of foreign gold ETFs iShares Gold Trust and SPDR Gold Trust are traded on the St. Petersburg Stock Exchange, but only professional investors can buy them.
Pros: You can easily invest in gold without having to physically buy it and worry about storing it. ETFs can be traded in the same way as regular securities. The risks are much less compared to futures trading.
Cons: You need to pay a fee to the provider: for example, the FinEx operator charges a 0.45% maintenance fee for one ETF per year. ETFs are generally underused in Russia - and trading through a foreign broker is overshadowed by the costs of currency transfers and commissions, as well as a high entry threshold.
Although some funds are backed by physical gold, not everyone will be able to exchange shares for bullion - for example, for SPDR Gold Trust, the exchange is available to investors with positions over $16 million.
4. Mutual funds of precious metals
Investors buy shares, and mutual funds (mutual funds) invest in "gold" instruments: shares of gold mining companies, unallocated metal accounts and futures. Therefore, mutual fund quotes rarely follow the dynamics of gold prices. The decision on what to invest in for the best return is made by the fund manager. It is worth investing in a mutual fund for a period of one year.
Pros: the work of mutual funds is strictly regulated and regulated by the state, which makes investments more reliable. Operations with shares are not subject to VAT. You do not need to spend time on investments and market research yourself - professionals will trade for you.
2. Gold bullion coins
They can be bought at banks, numismatic stores and at auctions. Coin prices are determined by the value of gold on the London ICE Exchange. They usually look nice and can be a cool gift.
Pros: As with bullion, this is tangible gold. But you do not need to pay VAT when buying coins. Some rare series have additional numismatic value.
Cons: the same as with bullion - large spreads and the need for even more careful storage. Scratches and damages lower the price of coins even more than in the case of bullion. You can sell coins only at a big discount to the exchange price of gold - therefore, income from such investments can be received only after five to ten years.
3. Gold ETFs
ETF (Exchange Traded Fund) is an investment fund whose shares are traded on the stock exchange. Its quotes are tied to the assets in the portfolio. For gold ETFs, the only asset is gold - therefore, their shares completely repeat the movements of the market price of the metal.
There is only one gold ETF on the Moscow Exchange - FXGD, whose shares can be purchased for rubles. At the same time, its currency is the US dollar, which also affects the value of the fund. One FXGD ETF is equivalent to 0.22 grams of gold. Shares of foreign gold ETFs iShares Gold Trust and SPDR Gold Trust are traded on the St. Petersburg Stock Exchange, but only professional investors can buy them.
Pros: You can easily invest in gold without having to physically buy it and worry about storing it. ETFs can be traded in the same way as regular securities. The risks are much less compared to futures trading.
Cons: You need to pay a fee to the provider: for example, the FinEx operator charges a 0.45% maintenance fee for one ETF per year. ETFs are generally underused in Russia - and trading through a foreign broker is overshadowed by the costs of currency transfers and commissions, as well as a high entry threshold.
Although some funds are backed by physical gold, not everyone will be able to exchange shares for bullion - for example, for SPDR Gold Trust, the exchange is available to investors with positions over $16 million.
4. Mutual funds of precious metals
Investors buy shares, and mutual funds (mutual funds) invest in "gold" instruments: shares of gold mining companies, unallocated metal accounts and futures. Therefore, mutual fund quotes rarely follow the dynamics of gold prices. The decision on what to invest in for the best return is made by the fund manager. It is worth investing in a mutual fund for a period of one year.
Pros: the work of mutual funds is strictly regulated and regulated by the state, which makes investments more reliable. Operations with shares are not subject to VAT. You do not need to spend time on investments and market research yourself - professionals will trade for you.
Cons: they do not do it for free - you will have to pay commissions to the management company. As a rule, the remuneration is about 2-3% of the total assets. There are also costs for transactions with shares: depending on the timing and volume of investments, they amount to 0–3% of the investment amount.
5. Impersonal metal account (OMS)
In fact, this is a bank deposit, its currency is gold, which you buy from the bank. The cost and profitability of the account is tied to the rate of the precious metal. Like a regular deposit, OMS can be both urgent and on demand. In addition to gold, when opening OMC, you can choose other metals: silver, platinum or palladium.
Pros: you do not need to pay VAT for transactions with compulsory medical insurance. No need to spend money on storing gold. Higher liquidity compared to bars and coins. The entry threshold is low: you can open an account from one gram. And if the metal lay on the MHI for three years, then the profit received from its sale is not subject to personal income tax. The same rule applies if the amount of sold metal does not exceed ₽250 thousand per year.
Cons: the account is impersonal and not backed by physical gold - when closing a deposit, you can only receive the cash equivalent of gold. Unlike deposits, CHI does not have guarantees from the Deposit Insurance Agency - in case of problems, the bank can lose investments. Income is not guaranteed: if the price of gold falls, you will also receive a loss. There is a significant difference between the price of buying and selling gold through OMS.
6. Shares of gold mining companies
Many factors affect such securities, but the value of gold is the main one, just as the price of oil determines the value of oil producers. The main public gold mining companies in Russia are Polyus, Polymetal, Seligdar, Buryatzoloto and Lenzoloto.
Pros: shares of Russian companies are easy to buy on the Moscow Exchange. They are quite highly liquid, and can also bring dividend income - even during periods of falling gold prices. Costs are only brokerage commissions.
Cons: Gold mining stocks can be overvalued due to various factors, such as high leverage. In this case, even the rise in gold prices may not help their quotes.
7. Gold futures
This is a derivative instrument of the stock market - futures contracts, according to which the buyer undertakes to buy an asset from the seller at a predetermined price. They have an end date when contracts are settled. The futures rate follows the dynamics of gold on the world market. Profit (or loss) is generated by the difference between the purchase price and the sale price of the contract. To trade futures, you need to open a brokerage account.
Pros: highly liquid and highly profitable instrument. Spreads and costs to buy and sell are very low, which is why futures trading opens up opportunities for speculation and strategies that are not available to bullion and coin buyers.
Cons: This is a very risky tool - futures trading requires experience and knowledge. It is not suitable for long term investment.
5. Impersonal metal account (OMS)
In fact, this is a bank deposit, its currency is gold, which you buy from the bank. The cost and profitability of the account is tied to the rate of the precious metal. Like a regular deposit, OMS can be both urgent and on demand. In addition to gold, when opening OMC, you can choose other metals: silver, platinum or palladium.
Pros: you do not need to pay VAT for transactions with compulsory medical insurance. No need to spend money on storing gold. Higher liquidity compared to bars and coins. The entry threshold is low: you can open an account from one gram. And if the metal lay on the MHI for three years, then the profit received from its sale is not subject to personal income tax. The same rule applies if the amount of sold metal does not exceed ₽250 thousand per year.
Cons: the account is impersonal and not backed by physical gold - when closing a deposit, you can only receive the cash equivalent of gold. Unlike deposits, CHI does not have guarantees from the Deposit Insurance Agency - in case of problems, the bank can lose investments. Income is not guaranteed: if the price of gold falls, you will also receive a loss. There is a significant difference between the price of buying and selling gold through OMS.
6. Shares of gold mining companies
Many factors affect such securities, but the value of gold is the main one, just as the price of oil determines the value of oil producers. The main public gold mining companies in Russia are Polyus, Polymetal, Seligdar, Buryatzoloto and Lenzoloto.
Pros: shares of Russian companies are easy to buy on the Moscow Exchange. They are quite highly liquid, and can also bring dividend income - even during periods of falling gold prices. Costs are only brokerage commissions.
Cons: Gold mining stocks can be overvalued due to various factors, such as high leverage. In this case, even the rise in gold prices may not help their quotes.
7. Gold futures
This is a derivative instrument of the stock market - futures contracts, according to which the buyer undertakes to buy an asset from the seller at a predetermined price. They have an end date when contracts are settled. The futures rate follows the dynamics of gold on the world market. Profit (or loss) is generated by the difference between the purchase price and the sale price of the contract. To trade futures, you need to open a brokerage account.
Pros: highly liquid and highly profitable instrument. Spreads and costs to buy and sell are very low, which is why futures trading opens up opportunities for speculation and strategies that are not available to bullion and coin buyers.
Cons: This is a very risky tool - futures trading requires experience and knowledge. It is not suitable for long term investment.