So you’ve decided it’s time to invest in gold.
Good thinking. But now you’re wondering, ‘What gold product should I buy?’
In Australia, we have many options available when it comes to buying physical gold or investing in an exchange traded fund (ETF) that tracks the gold price.
As the editor of Strategic Intelligence, I recommend my readers maintain a 10% allocation of their net wealth in gold and silver.
In this article, I’ll explain how to invest in gold bullion in detail.
Investing in Gold ETFs
First, let’s go over some gold ETFs available in Australia.
The spot gold price is volatile. Many investors are looking to take advantage of the price movements. Gold ETFs can suit that purpose. Take note, though, if an ETF shows a markedly different return to the spot price of gold, chances are the fund has exposure to more than gold bullion alone.
You’ll also find some gold-backed ETFs that are leveraged, offering you two, or even three, times the gains — or losses — made by gold. With greater leverage comes greater risk. So I don’t recommend those if you’re just starting off.
There are three 100% gold bullion-backed ETFs listed on the ASX:
- BetaShares Gold Bullion ETF [ASX:QAU]
- ANZ ETFS Physical Gold ETF Fund [ASX:ZGOL]
- ETFS Metal Securities Australia Ltd [ASX:GOLD]
I’ll give you a quick rundown.
ETFS Metal Securities Australia [ASX:GOLD] has been listed on the ASX since 2003. With this ETF, one unit (share) represents about a tenth of the spot gold price. It means that, if you buy one unit of this ETF, it will cost roughly 10% of the Aussie-dollar gold price per ounce. For example, the physical gold spot price is trading at $1,593.10 an ounce. That means one unit of this ETF will be roughly $153 per unit.
If the Aussie spot gold price moves up by one dollar, the value of the ETF units will increase by 10 cents.
ANZ ETFS Physical Gold ETF Fund [ASX:ZGOL], on the other hand, only began trading in the middle of 2015. Unlike GOLD, one unit of ZGOL is roughly a hundredth of the gold price in Aussie dollars. So if the spot gold price in Aussie dollars moves up one dollar, the value of a ZGOL unit will only increase by one cent.
Neither of these ETFs have a currency hedge. Which means you are trading the spot gold price in Aussie dollars, not US dollars.
In contrast, the BetaShares Gold Bullion ETF [ASX:QAU] does have a currency hedge. This means that, while you are still using Aussie dollars to buy QAU units, the ETF tracks the US gold spot price. Basically, this gives you a ‘purer’ exposure to the USD spot gold price.
However, like ZGOL, QAU shares are a hundredth of the USD spot gold price. Again, a one dollar movement in the USD spot gold price will equate to a one cent movement in QAU.
If you are looking to increase your exposure to the gold price through an ETF, these Aussie-listed, 100% backed by gold bullion ETFs are a good way to do so.
Investing in physical gold and silver
Over the years, a lot of people have asked me if the Australian government has limits on personal gold holdings. To my knowledge, there’s nothing like this in place.
One of the advantages Australians have is that the government doesn’t really consider gold anything other than a shiny trinket we can dig up and sell to China. Therefore, we are left alone to buy as much as we want.
Now we get to the fun part…investing in the world’s oldest form of money: physical gold bullion and silver.
Before you commit any money to gold and silver, remember that whatever cash you place in bullion should be considered a store of wealth. You don’t buy bullion only to cash out quickly. A bullion purchase — without significant market stress, of course — should be for a minimum of 10 years.
When it comes to buying bullion, the first decision you need to make is where you are going to keep it. Do you want the bullion dealer to store it for you? Do you want to keep it in a safety deposit box? Or would you like to keep it at home?
Physical gold can’t be insured for private investors — at least in Australia — so I don’t recommend keeping it at home.
As a bullion investor myself, I understand the desire to keep it stored nearby.
If you really want to keep gold at home, I strongly urge you to install a top quality safe, well hidden from anyone.
Let me put it another way: You don’t want just any old safe from Bunnings. YouTube is full of videos on how to crack a safe. Begin your research with these videos and you’ll quickly realise how useless a chain-store safe really is.
I’m speaking from experience. I once had a safe bolted to the floor. After watching one of these videos, I tried to hack my own safe. I put a pin in the right spot and, with a few whacks, I had the door open in 20 seconds.
I can’t emphasise enough the importance of researching the type of safe, and ensuring that it remains hidden. And do not tell anyone that you have physical gold stored at your home.
Arranging storage through your bullion dealer is a popular option. Especially if you are buying large quantities.
Places like the Perth Mint offer both allocated and unallocated storage. That is, if you don’t take physical delivery of your gold, you can keep it stored with them, either with your name on it or not.
If you have allocated storage, it means the bullion dealer writes down the serial numbers of the bullion bars next to your name. Those bullion bars are now allocated to you only.
Unallocated storage is where the amount of bullion you purchased is stored in a pooled vault. So you don’t have any serial numbers allocated to you; instead, you have an amount of gold set aside for you.
Finally, you can take physical delivery of the bullion bars and pay to have them stored in a security deposit box you have access to at your leisure.
Which storage method you choose is up to you. However, there are different fees charged for each method. It’s about choosing the one that makes you feel most comfortable with your investment.
Once you’ve decided how you’ll store your gold, you need a dealer to buy the bullion from.
The companies below are the major bullion dealers in Australia. We are not affiliated with them in any way. This is just a list to get you started:
- City Gold Bullion
These dealers are based in different cities across Australia. Generally, they will arrange shipping to you. You must be there at the other end to sign for the gold — for obvious reasons!
Before I go any further, remember this. Any reputable dealer must identify you if you are buying online. This means you will be required to provide certain documents proving your identity. But the process isn’t too difficult.
Buying and selling gold & silver online
You can also buy gold and silver on eBay.
I don’t recommend buying on eBay, especially if you’re new to bullion. As a general rule, steer clear of eBay, as you can’t guarantee what you’re buying until you have it evaluated. Whereas, when you buy from a dealer, the purity of the bullion is already known.
Selling online is a different story. Sometimes, you may find a gold novice that wants to buy from you. In these cases, you are occasionally able to charge a higher rate, receiving more than the spot price of gold at the time of selling. Dealers tend to ‘buy back’ gold at slightly below the spot price. Think of this spread like a commission. However, beware that bullion is easy to steal and hard to track. Think twice before listing your shiny bullion bar for sale online.
Coins or bars?
Now that you’ve decided on how to store your gold, what type of gold should you buy? Minted bars, bullion coins or cast bullion?
Bullion coins — generally speaking — are quite decorative. Often, the Perth Mint will release a ‘lunar’ coin series to complement its Australian coins each year. It’s still physical bullion, but you’ll pay a premium for this product because there is more work involved in the minting process.
It’s a similar story for minted bars. While they’re less ornate than coins, they come — again, generally speaking — in premium packaging, so they attract a higher price per ounce.
On the other hand, there’s cast bullion. Don’t get me wrong, it’s boring in comparison to minted bars and coins. Aside from the bullion or refinery’s stamp, there’s nothing exciting design-wise about this type of bullion. If you’re after the lowest gold price however, cast bars are the closest to the spot price.
If you are gifting physical gold, people tend to prefer giving decorative bullion. But, if you’re buying gold bullion to store for the long term — over decades — then cast bars offer the most value for your dollar.
Below is a list of the bullion gold commonly found in Australia:
- Australian Kangaroo Gold Bullion Coin: A gold coin from the Perth Mint containing one troy ounce of 99.99% pure gold.
- Royal Canadian Mint Maple Leaf: Similar to the coin from the Perth Mint, it contains one troy ounce and 99.99% pure gold.
- American Gold Eagle: A gold bullion coin from the US Mint. One troy ounce of gold at 99.99% purity.
Minted Bullion Bars:
- Kangaroo Minted Gold Bar: One troy ounce with 99.99%. Other minted bars to consider should come from a reputable refinery, such as PAMP or Argor-Heraeus.
- Kangaroo Mint 100g Minted Gold Bar: Contains 3.215 troy ounces of gold at 99.99% purity. Other refiners, such as PAMP or Argor-Heraeus, also offer a similar product.
The Perth Mint Gold Cast Bar 1oz, 10oz or 1kg: Each cast bar contains one troy ounce, 9.99 troy ounces and 32.148 troy ounces respectively.
If you are making a large gold purchase, the larger cast bars are the most cost-effective. Cast bars don’t have to come from the Perth Mint. You can purchase these bars from any reputable bullion dealer in Australia.
You’ll find a list of bullion dealers above. Most of these bullion dealers will have their own stamp on large-size bullion bars.
Don’t forget that silver can also be an investment opportunity — one that is considered a reliable long-term store of wealth. Below, you’ll find some ideas to get you started if you’re looking to buy silver. If you are unsure how much physical silver to invest in, my general rule is that silver should only make up about 1–2% of your total bullion value, not weight.
Silver Bullion Coins and Bars:
- Koala Silver Bullion Coins: One troy ounce at 99.90% pure silver.
- Wedge Tail Eagle Silver Bullion Coin: One troy ounce with 99.90% pure silver.
- Perth Mint 10oz Silver Bullion Minted Bar: 10 troy ounces at 99.90% pure silver.
- Perth Mint 1kg Silver Cast Bar:15 troy ounces of 99.90% pure silver.
- Perth Mint 100oz Silver Bullion Cast Bar: 100 troy ounces at 99.90% pure silver.
Again, most bullion dealers across Australia offer their own branded minted or cast silver bars.
The branding of your bullion isn’t important — as long as it is from a reputable bullion dealer — and comes down to personal preference.