There has been plenty of discussion about the fluctuation in the gold price this year. But how does one actually invest in gold?
When you think of gold, what comes to mind?
It might be the Australian gold rushes of the 1850s and the associated gold nuggets.
It might be jewellery, gold bars or luxury watches.
It might be $1 or $2 coins (although these contain no gold; they are 92% copper, 6% aluminium and 2% nickel).
Or, if you’re already an investor, it might be the companies producing gold – that is certainly one way to invest in the precious metal, but not the only one.
What is gold?
An element with the symbol Au – which comes from the Latin aurum – gold is a precious metal that occurs naturally and is relatively rare.
It is the 75th most common element in the earth’s crust, at an estimated 0.001 to 0.006 parts per million, making up just 0.0000004% of the total.
Much of gold’s value is tied to its history; it has been seen as a reliable store of value for thousands of years, as director of corporate finance Davide Bosio explains.
“It is one of the earliest known currencies, having been used for the trading of goods and services since ancient times,” he says.
“Thanks to that, it has long been associated with a genuine store of wealth or value.”
That reputation has endured through the years, and even grown stronger, thanks to the rise of fiat currency – currency that is not backed by a physical asset like gold – and in more recent times cryptocurrencies.
“The rise of these currencies, as well as the proliferation of the printing press, allows governments to print as much cash as they need to stimulate their markets or satisfy their debt obligations,” Bosio says.
“So, if you’re holding one of these currencies, like the US or Australian dollar, when the government prints more money, it devalues the currency.
“This is the attraction for gold as a store of value.
“There is a finite amount of gold, so you can’t just press a button and print more of it, therefore it retains its value.
“Especially in inflationary times, gold is seen as an attractive asset.”
How do you invest in gold?
There are a number of ways to invest in, or buy gold, the first and perhaps most obvious being buying, well, gold.
“In days gone by the old-timers would go and find the stuff in the ground,” Bosio says. “But that has proven to be difficult for most.”
Panning for gold is unlikely to bring you much wealth these days, but you can purchase physical gold and own it yourself, such as via the Perth Mint, where you can simply swap money for gold.
Gold traditionally comes as gold bullion – gold that is nearly but not quite 100% pure – in bars, or in coins. The former is larger and more costly, the latter more affordable but less valuable.
A recent advent and a newer way of investing in gold is via exchange-traded funds (ETF), a type of investment fund that is traded on a stock exchange.
“Financial markets have evolved a huge amount over the years,” Bosio explains, “and the rise of gold ETFs has changed the way people perceive an investment into gold.
“Gold-backed ETFs are a very popular way of buying gold. If you buy a dollar of the ETF the fund manager goes and buys $1 of gold as a physical store of value on your behalf.
“It is a liquid, low-cost and efficient way of getting exposure to the precious metal.”
There is the option to get exposure to gold through contracts for difference (CFD) investing in the futures market.
Finally, you can also make an investment into gold by buying securities in companies that mine and produce gold, giving you exposure to the metal without having the physical asset.
Gold investing in Australia
Bosio says that investing in listed Australian gold companies is a wise move – provided you have checks in place to ensure the company you are investing in is a sound option – thanks to Australia’s reputation as a tier 1 mining jurisdiction.
“We are extremely fortunate in Australia to have some of the best gold producers on the planet,” he explains.
“Most investors regard Australia as a tier 1 jurisdiction, which means we have stable government, a low sovereign risk, low political risk, as well as well-established, tried-and-tested mining laws, which make Australia a safe place to own and operate a mine.”
Those laws also ensure that Australia has some of the highest standards in the world for the reporting of mining activity, such as drilling results and mineral resource and ore reserve estimates.
“We are one of the most attractive countries in the world for gold investment,” Bosio says.
– Daniel Paproth
Phillip Peters is an independent journalist, entrepreneur, digital marketer and press release publisher. He has a soft spot for technology, gadgets, cryptos and writing about health and politics. He also loves travelling the world! Phillip has been working with KukaUSA full time since September 2018.