The unique selling points of gold:
- Unlike paper money, bonds and other stores of value, gold cannot be propagated arbitrarily.
- The gold market is a straightforward market with a current annual output of approximately 2,500 tons.
- Gold is a natural means of payment and is not subject to a promise of payment by a third party.
- Gold is not subject to issuer risk, entrepreneurial risk or insolvency risk.
- Gold has been used as form of money for thousands of years.
There are various ways you can invest in gold:
Option 1: Invest in Physical Gold
The easiest way to do this is to buy bars or coins. If you want to use gold as ‘insurance’ against extreme events, you should purchase the precious metal in its physical form. Coins are easily replaceable and easy to buy as they are available in small units. To remain flexible for later sale, you should buy well-known gold coins, such as Krugerrand, American Eagle or Maple Leaf, that are in global demand. You will always find buyers for these coins anywhere in the world. Bars, in contrast to coins, have a lower price premium, which is charged at the time of purchase. This is because they are less expensive to produce and often weigh more. Bars are suitable for investors who wish to ‘park’ larger sums. In other words: the heavier the coin or the bars, the lower the difference between the buying and selling rate. However, there is also a disadvantage to investing in physical gold: You need to keep the coins or bars at home (risk of theft) or deposit them at a bank (and what would happen if the bank suddenly closed?).
Option 2: Invest in Shares of Gold Mine Operators
The stocks of mine operators tend to track the price of gold. However, the corresponding stock prices fluctuate quite a bit more than the gold price. The fluctuations depend on a number of corporate and external factors. Gold mining stocks should therefore only be considered a speculative 'bet'.
Option 3: Invest in Gold Securities
Investors who want to create some variety in their portfolio should take advantage of securities, which track the price of gold on a 1:1 basis (such as Euwax Gold or Xetra Gold). I have summarized the pros and cons for you.
Pros: The securities are easy and quick to trade. They are inexpensive and do not have to be physically stored in your home or in a bank vault.
Cons: The purchase of these securities is only a bearer bond. This is a security that securitises a claim against an issuer. However, some providers, such as Xetra Gold and Euwax Gold, buy the gold and then physically deposit it. Under certain conditions, the gold can even be delivered to the investor.
About the Author:
Since 2002, the analyst Rolf Morrien is editor in chief of the investor service "Der Depot-Optimierer" and author of the books "Wie lege ich 10.000 Euro optimal an" and "Börse leicht verständlich".