GOLD has received a significant amount of attention from investors in the past few years as it is viewed as a safe haven asset, or store of value, which tends to benefit during periods of risk aversion, high inflation or a lack of confidence in major currencies. With the US Dollar (USD) price of gold recently hitting two-year highs, although still below 2011/12 peaks, gold has again become a popular investment for private investors.
Purchasing physical gold may seem like the purest and simplest way of investing in gold, however, it can be an expensive and complex process. Gold must be purchased from a bullion dealer who will quote, buy and sell prices in Australian Dollars (AUD) that may differ significantly from the AUD equivalent of the USD price of gold quoted in New York. The buyer of the gold also needs to be confident in the purity or authenticity of the gold that is being purchased. There are also costs of transporting and insuring the gold when buying or selling it. Finally, the gold must be stored in a safe place such as a gold depository or safe deposit box and insured for the duration of the investment, which can be costly – especially for small amounts.
Gold futures are traded on the US COMEX futures exchange and Australians can trade these futures contracts in multiples of 100 troy ounces (around A$180,000) so they are only suitable for larger private investors. COMEX gold futures are highly liquid and can be purchased at relatively low costs.
ETFs have become the most popular way of buying gold exposure as these can be bought through the stock exchange relatively easily, and at low cost. The price of the ETF will very closely match the number of gold ounces applicable to each ETF unit multiplied by the current US gold price, and the AUD/USD exchange rate if a local gold ETF is purchased rather than a US-listed gold ETF. ETF’s are generally able to buy, transport, insure and store gold at very low costs and they are typically very liquid securities which make them the cheapest and simplest way of gaining pure exposure to gold price movements.
- This article does not take into account the investment objectives, financial situation or particular needs of any particular person. Accordingly, before acting on any advice contained in this article, you should assess whether it is appropriate in light of your own financial circumstances or contact your financial adviser. Christopher Hindmarsh is an adviser at JBWere Limited. JBWere Limited is owned by National Australia Bank Limited Group.
