The holy grail of most people’s wealth-building goal is to achieve financial freedom. Financial freedom, or financial independence, is the status of having a dependable cash flow to pay your living expenses for the rest of your life without having to be employed or dependent on others. Just about everyone wants to achieve financial freedom […]
Gold has a rich history.
Long before paper money and credit cards, gold was used as a form of currency and a symbol of wealth. The first use of gold as currency occurred in the late 8th century BCE. We’re in the 21st century, and the yellow metal still plays a vital role in the orderly function of markets and commerce.
Gold has been used in the past as a hedge against rising inflation. When the 2007-08 Global Financial Crisis hit, the prices of gold soared. Reason? Investors considered it to be an attractive option to store wealth.
The commodity is now considered a “safe-haven” investment. And yep, you guessed it, it’s because gold tends to act as a more reliable instrument to store value in times of financial distress. It is the metal we turn to when other forms of currency don’t work.
Gold’s malleability, unique lustre, scarcity and universal recognition play a significant role in its underlying value – all good reasons to consider investing in it.
However, you must learn to do it right.
As a finite resource, physical gold has a limited supply.
Gold prices surge when the stock markets take a tumble.
This was the case when COVID-19 rattled markets in late March.
The volatility in the markets sent up red flags. Red, expensive flags.
Investors and traders were increasingly getting nervous about coronavirus’ impact on the market. It forced many of them to move their money into gold.
Gold performs better than other assets during ‘risk-off’ periods or times of economic uncertainty.
Gold gained 16% value since the start of the year due to widespread market uncertainty — and it could keep going!
According to GoldPrice.Org, 1 ounce of gold (about 30 grams) is currently worth about AUD $2,676. Some experts are suggesting gold could hit record highs.
Is Now the Time to Buy Gold?
The current pandemic has left many Aussies wondering whether now is the right time to invest.
Depending on market factors, stimulus measures and whether life will return to normal, the value of gold could flatten or decline.
That said, gold is still a great asset to utilise as part of a diversification strategy.
Rather than having all their eggs in one basket, many investors spread risks by investing in different asset classes. If one sector declines, they are better protected. Therefore, the best time to buy gold is when you want to diversify your portfolio, and the markets are uncertain.
There is only around 15% of Aussies hold gold in their investment portfolios. Most Australian households have their wealth heavily skewed towards property and the stock market.
The secret to diversification is picking investments that are not closely correlated to one another. Gold will often outperform bonds, stocks and other tradable assets during times of economic uncertainty, meaning it could be a good buy now.
How Can You Invest in Gold in the ASX?
Here comes the juicy part: Investing in gold in the stock market.
Investing in physical gold is a traditional approach. Gold has been “digitalised.”
Depending on your interests and risk appetite, there are 2 options to get direct exposure to the value of gold.
Gold Mining Stocks
While investing in a company that’s involved in the gold business doesn’t imply direct gold ownership, you’ll enjoy exposure to the rare metal by way of that company’s operations.
Confused yet? Let’s break it down.
You need to create a share trading account to invest in gold stocks.
Gold miners deal with gold extraction, processing and refining gold into bullion bars. Since these companies handle buying and selling, you don’t have to undergo the hassle of purchasing, storing and insuring the gold.
It goes without saying that gold mining stocks can be unpredictable. Mines don’t always yield as much gold as expected. Companies go bankrupt. Gold miners and producers are susceptible to stock market swings.
With a market cap of about $ 25.87 billion, Newcrest Mining (ASX: NCM) is Australia’s largest gold miner.
The ASX boasts 150+ other gold-oriented mining stocks, with a good number of them valued in excess of $1 billion.
Notable mentions include Evolution Mining (ASX: EVN), Northern Star Resources (ASX: NST), Regis Resources (ASX: RRL), Saracen Mineral Holdings (ASX: SAR) and St Barbara Limited (ASX: SBM).
To be safe, pay attention to a company’s existing mining portfolio. Avoid the risk of investing in speculative explorers with no discoveries, limited cash and unproven operations.
Instead, go for mid-tier producers and established giants.
If you have no issues holding the gold you own, Electronically Traded Funds (ETFs) offer ease of access and amazing liquidity. They let you track the underlying price of gold without the need to physically hold the asset.
ETFs are one of the fastest-growing financial instruments. They’re now a multi-billion industry.
The ETF Securities Physical Gold ETF (ASX: GOLD) debuted way back in 2003.
Yes, the ASX was the first market to present a gold-oriented ETF, which has since spurred on the creation of many other gold-themed ETFs like the BetaShares Gold ETF – Currency Hedged (ASX: QAU), ETFS Physical Gold (ASX: GOLD), VanEck Vectors Gold Miners ETF (ASX: GDX) and the Perth Mint Gold ETF (ASX: PMGOLD).
So how does it work? If you invest in gold, you get ownership of shares, while the fund owns the physical gold. This way, you won’t have to worry about the storage or trading the gold yourself.
A share is equal to about 10% of the spot price of gold in AUD.
Where to Buy Physical Gold
Maybe you want to buy gold bullion in bars or coins.
Australia is definitely the place to be if you want to buy physical gold. Besides being one of the most politically stable countries in the world, Australia has massive reserves. This means that you can be confident in the investment you are making.
There are several legit and accredited gold dealers around Australia.
Perth Mint, for instance, has been in the gold trading enterprise for over a century. Every year, they distribute over $20 billion worth of precious metals to over 100 countries worldwide.
Here are a few dealers you can consider:
Gold Bullion Australia – with over 3 decades in the business, GBA buys, sells and stores precious metals for Australians. Through SMSF, GBA also offers investment options in precious metals.
ABC Bullion – ABC Bullion has been in business since 1972. Specialising in trading precious metals and bullions, the company caters to a diverse array of clients that include retail investors, fund managers, SMSF trustees and jewellers.
Others include Ainslie Bullion, Bullion Capital, Gold de Royal, KJC, Guardian Gold and Gold Stackers Australia.
*Kindly note that these are just suggestions and I’m not affiliated with any of these dealers.
How Much Should You Invest in Gold?
While gold mining stocks are exposed to wild swings of the market, holding gold ETFs presents a great investment opportunity.
However, it can be a bad move to commit the majority of your portfolio to gold.
It’s best to consult with your financial adviser before deciding how much of your investment should be in gold.
The historical performance of gold proves that the commodity has the potential to outperform even in volatile times. Few assets in the financial market hold defensive resilience and safety as that of gold.
As global stock markets tick further into unchartered territory, now is the best time to invest in gold.
As always, ensure you do your research and consider your own circumstances before investing in gold. It’s a complicated decision and not one to enter lightly. If ever in doubt, don’t hesitate to seek the help of a professional financial adviser.