The question is: Should you buy some gold today?
Of course, I am not a financial adviser and what follows is not my advice, just my personal opinion. I don’t have any gold myself and I have no plans to buy any, even if I had cash to spare. But I did look at this very chart in January because we are planning to make a few gold watch cases next year, therefore buying some raw material made sense. However, I didn’t – and I don’t regret the decision.
Here are a couple of things to be aware of before you decide to invest in gold:
1. The spot price is not the price of actual gold you will be buying – there is a premium on top which is paid to merchant / dealer / supplier. For example, 1kg gold bar ($71,000) would attract an additional transaction fee of $750. Or worse if you chose to buy 10 x 100g bars, then paying premium on the lot would be around $1,400. This is simply the cost of buying gold.
2. The only way to pay for gold is by direct bank transfer - no cash or credit cards.
3. You've got your gold – so where are you going to store it? Under the mattress? In a flimsy home safe? A bank deposit box? It is essential that you understand and evaluate the process of physically storing gold BEFORE you actually buy any. Keep in mind that the contents of your bank deposit box is your liability. While a bank provides storage space, it does not insure the contents. Physical gold is a mental burden, regardless of where it's stored. And before you think about it, storing it at home is the worst option.
4. Most investors prefer to store gold with gold merchants who provide a storage service. But just think for a moment: the person/business who sold you the gold is now the same person/business who is going to look after it for you for many years to come. That’s plenty of trust. If you don’t trust Westpac or Commonwealth Bank, how can you trust a private bank?
In general, Gold merchants offer 3 types of service:
a. Pool Allocated Storage: instead of buying actual gold, you are buying a share in a ‘pool of gold’. There is no storage fees – because there is no actual gold to store. The real gold is stored somewhere else (?).
b. Secure storage: your gold is in the physical care of a merchant or his agent or supplier (?). If / when you wish to see or collect the gold you’ve paid for, you will receive exactly the same amount of gold you’ve bought – except it could be any gold they have in stock. And yes, there is a storage fee.
c. Premium Storage: this is really true storage of your gold. For example, if the bar you’ve bought is numbered, you will collect exactly the same bar in future. Premium storage fees apply.
5. Gold is dead money. When stored, gold generates negative income.
6. The spot price of gold goes up and down. While the top chart shows the price of gold steadily raised over the past two decades, the inflation adjusted chart below tells a different story: the value of gold (it’s buying power) peaked in the 1980s. The year to invest in gold was around 2000. We’ve missed the boat! |
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