Author: Marissa Hayden
Why invest in gold?
Gold is valued for its relative rarity, its unique lustre and for its durability. Ancient societies used gold as coinage because it doesn’t corrode and because it doesn’t react easily with other chemicals. This means that gold can be stored for a long time without becoming tainted or decreasing in size, making it an attractive option to store wealth.
Even today, long after governments stopped using gold to back the value of their currencies, gold still maintains its place as a store for wealth. When the GFC hit, gold prices soared as some investors considered it to be a more stable investment.
Some investors also use gold as a diversification instrument, because it tends to not be affected by the same influences as stocks. Because gold is seen as a stable investment that isn’t exposed to the same level of volatility as stocks, it could be worth investing if you’re looking to protect your wealth.
In New Zealand, you can buy and invest in gold by:
- Buying physical gold (i.e. gold bullion)
- Investing in gold stocks or ETFs
- Investing in gold mining companies
3 Ways to invest in gold
There are a few different ways to invest in gold, depending on your interests and appetite for risk.
1. The physical asset
The most obvious, but not necessarily the most straightforward option, is to buy physical gold and directly own it yourself. You can buy physical gold from a wealth of dealers, including online ones. Some will even provide storage services along with the gold. Otherwise, you will need to arrange for your own storage, in a secure deposit box, for example.
Gold can be bought as coins, bullion or even jewellery – how it comes isn’t as important as the quantity and its purity. Watch out for high premiums when buying gold. For example, the rarity of the coin or the artistic work of the jewellery shouldn’t really matter. Instead, it may be best to buy as close to the market price of gold as possible.
Another option, and probably the simplest and most straightforward one, is to buy into a gold-backed exchange-traded fund (ETF). In an ETF you own shares of the fund, while the fund owns the physical gold. This gives you exposure to gold, without having to worry about storage or buying and selling the gold yourself. You’re benefiting from the price of gold without physically owning the asset. ETFs are traded on stock exchanges just like shares, making them easier to buy and sell as required.
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At the time of writing, there are no gold ETFs listed on the NZX. However, popular online investing apps such as Sharesies and Stake allow you to invest in international stocks, including popular US and Australian gold ETFs such as:
- SPDR Gold Shares
- iShares Gold Trust
- SPDR Gold MiniShares Trust
- GraniteShares Gold Trust
Note: this is not an endorsement of any particular Gold ETF nor a comprehensive list of available options.
It’s important to note that gold ETFs aim to replicate the price of gold. This may be done through a variety of investments and strategies including, but not limited to, holding physical gold.
Additionally, as there are no gold ETFs listed on the NZX, your investment will be in the fund’s native currency, and you will be subject to exchange rates.
3. Gold mining companies
A third way to invest is in companies that mine gold. You won’t have direct exposure to the gold market but, unsurprisingly, gold miners’ stocks tend to be closely correlated to the gold price. One thing to be aware of is that gold miners tend to experience an amplification of any gold price movements. This will magnify any gains, but also increase losses. You should also be wary of investing in companies that are in the exploration phase. While some of these may strike it rich, many more will likely fail to find any gold.
Currently, there is only one gold mining company listed on the NZX, New Talisman Gold Mines Limited (NTL). However, as mentioned above, most popular share trading platforms allow you to invest in overseas stocks, where you can invest in a multitude of gold mining companies with ease.
This can be done through investments in individual stocks and companies, or through gold mining ETFs. Unlike the above ETFs, these invest in a multitude of gold mines and miners as opposed to physical gold.
The disadvantages of investing in gold
There are a few downsides to gold as an investment. Mainly, long-term returns for gold tend to be lower than other investments. The fact that gold is considered a stable holder of wealth means that, while it usually doesn’t fall rapidly, it also doesn’t rise quickly. So it can make for a good store of wealth, a way to avoid short-term losses, and/or add diversity to your investment portfolio. But isn’t typically seen as a high-growth investment.
Although certain experienced investors may try to use it as a more short-term investment, and benefit from bullish runs.
Furthermore, gold doesn’t provide dividends as stocks do. Owning physical gold also comes with attached storage and security fees. Of course, this doesn’t mean that you categorically shouldn’t invest in gold, just that you should be aware of the risks associated – like with any other investment.
→Related article: What To Do When the Stock Market Goes Down
The golden rule
Like any other investment, gold has its benefits and its downsides. It can be a great way to store wealth, but its stability also means that it may underperform the market. As always, make sure you consider your own circumstances and do your research before investing. If ever in doubt, seek the help of a professional financial adviser.
About the reviewer of this page
This report was reviewed by Canstar Content Producer, Caitlin Bingham. Caitlin is an experienced writer whose passion for creativity led her to study communication and journalism. She began her career freelancing as a content writer, before joining the Canstar team.