Gold is a very valuable item known all around the world. Throughout history, it has been used as money, in electronics, and as fancy jewelry. Even today, many investors find it unique and appealing because it’s different from regular stocks and bonds.
People see gold as a safe investment, especially during tough times like the COVID-19 pandemic. In August 2020, its value reached a record high of over $2,000, up from $1,485 in 2019.
Gold is also a good protection against rising prices. When the cost of things goes up, the value of gold goes up too. This is because gold is rare, and people can keep their purchasing power even when prices are going crazy because of low-interest rates.
Nowadays, investors have various ways to invest in gold without needing to physically own it or put in a lot of money upfront.
What Are the Ways to Invest in Gold?
Did you know that you can invest in gold in different ways? You can buy physical gold and choose gold-linked currency investments, gold mining stocks, and gold ETFs or unit trusts.
- Buy physical gold
Buying physical gold is a typical way to invest in it. This gold is referred to as “bullion” and is usually in the form of bars, ingots, or coins.
But how can you make sure it’s good quality? Remember that bullion gold is at least 99.5% pure. Gold bars have information stamped on them, like weight and purity. They come in different sizes, from very small to one kilogram. Furthermore, gold coins also vary in shape and size. Some coins are accepted as money in their country, but they’re not very practical for everyday use.
You can buy physical gold from banks or brokers, but you should be careful to buy from reputable sellers. It’s better to buy from local sources than online, and in Singapore, you don’t have to pay a tax when buying investment-grade gold.
Gold jewelry is another way to have gold. Nonetheless, it’s not the same as investing in gold itself. Jewelry has extra costs for the design and craftsmanship, which don’t affect the value of the gold. Also, jewelry is not exempt from taxes.
If you buy physical gold, you need to think about how to keep it safe. Many people store their gold in bank safety deposit boxes or vaults because it can be stolen easily. You should also make sure the gold you buy is real and not mixed with other metals or fake.
Like any investment, the price of gold can go up and down, so its value won’t always be the same.
- Invest in gold mining stocks.
Instead of investing directly in gold, you can invest in companies that dig for gold. These companies’ shares should go up when gold prices rise because their gold becomes more valuable.
Mining companies can be managed well, and they find ways to get more gold while spending less money. But if they are poorly managed, they might get less gold at a higher cost, which is a risk. So, the management of the company matters, and there are other risks like debts and environmental policies.
When gold prices fall, mining companies can cut back on spending to stay profitable, which is something you can’t do with physical gold or gold ETFs. Mining stocks can also give you dividends, unlike physical gold or most gold ETFs. But remember, the returns from mining stocks depend on the company’s future success, not just on gold prices. Some mining companies do more than just gold mining, which can also affect their performance.
Even investors who aren’t really interested in gold, like Warren Buffet, can still invest in gold mining companies. This shows how you can benefit from the gold industry without directly buying gold.
- Invest in gold ETFs
Investing in gold ETFs is a way to invest in gold without buying physical gold yourself. These are like funds that hold different gold-related assets. Some track the price of gold, while others may include shares of gold miners or other gold-related things. The value of the ETF or unit trust depends on what assets it holds.
Gold ETFs can be easily traded like stocks, so you can sell them when you want. They are usually cheaper for new investors because you don’t need to buy actual gold. A gold unit trust is also a fund, but it’s more actively managed by professionals who buy and sell gold-related things in the fund to try to get better returns than just following the price of gold.
Both types of investments have expenses to manage the fund, but ETFs tend to have slightly lower fees. You should also check the companies behind the funds to make sure they are reliable and have a good history. If it’s hard for you to check, it’s a good idea to ask a qualified financial advisor for help. Make sure to look at the expense ratio and ask a financial advisor if you don’t understand the details.
You can buy gold ETFs from a bank or a licensed broker, which makes it convenient.
- Gold as a Commodity-Linked Structured Investment
Gold can be used as a way to invest your money safely when the stock market is unpredictable. One way to do this is by using gold currency investments. For example, you can buy a Commodity-Linked Structured Investment. Here’s how it works:
You talk to a bank or broker and decide how long you want to invest and in which currency, like USD or SGD. You also agree on a Target Conversion Rate (TCR) between gold and the chosen currency. Gold is treated like a currency and has its own code, XAU.
At the end of the investment period, you will get back your original investment plus some extra money, which is called a coupon. If the value of gold (XAU) has gone up compared to the chosen currency, you’ll get paid in that currency for both your investment and the coupon. But if the value of gold (XAU) has gone down below the TCR, you’ll get paid in gold (XAU) at the TCR rate.
This method can make more money than just keeping your money in US dollars, for example. It’s good for people who don’t mind getting paid in gold (XAU). If you get paid in gold, you can keep it, sell it, or invest it again in another investment that uses gold as the base currency to earn more money.
Gold is also used in more complex investments for experienced investors. But remember, investing in gold can be unpredictable and involves risks. The prices and forex rates go up and down a lot, so you need to keep an eye on them. There are also other risks like market risk, where the value of your investment can change a lot, principal risk, which means you might not get all your money back, and liquidity risk, where you might lose money if you take out your investment early.
It’s a good idea to talk to a qualified financial advisor before buying gold. You can reach out to us at Standard Chartered. The amount of gold you should invest depends on your financial situation, like how long you plan to invest, your risk tolerance, and the current market.
Try to have a balanced portfolio with different types of investments, including gold. Gold should have a clear and specific purpose in your investment plan.