Q&A: Investing in gold — is this the hour to do it?
It’s always the right time to invest to create personal wealth, but a diversified portfolio is a good foundation for building long-term wealth
Q: Is it a good time to invest in gold now and how do I go about doing it? — Ansie Horn via Money Facebook page.
A: Ricardo Teixeira, Certified Financial Planner® professional at BDO Wealth Advisers, responds:
Gold is a fascinating element, with a strong emotional attachment as a safe store of wealth, particularly during times of crisis. As a precious metal, it’s a tangible commodity that has real value, is in high demand and has a limited supply. Gold has also become a key indicator and measure of global economic activity. At face value, these are good characteristics of any investment.
However, gold is a difficult investment to understand. Being a commodity, there is no apparent basis for determining its price other than supply and demand between buyer and seller trading in gold. This makes the decision of investing potentially riskier than traditional investment asset classes of shares, bonds, property and cash.
As the gold price is not predictable, there is no way to determine the best time to invest in gold. As a long-term investor though, it’s always advisable to have a diversified investment portfolio which could well include exposure to the precious metal.
There are a number of ways to invest in gold. The best option for you would depend on your objective, needs and purpose for the investment. As a private investor, you could consider one of these alternatives to include gold in your investment portfolio:
Krugerrand are a practical and affordable way to own tangible gold. Krugerrand can be purchased directly from the SA Mint or through retail traders in gold coins. The Krugerrand is minted as either a proof or bullion coin and is available as a 1oz coin and in variations thereof. The current price of an SA Mint 1oz ounce proof gold Krugerrand is about R34,000.
Gold fund unit trust
This is a collective investment structure that holds a wide range of listed shares in gold mining companies both locally and globally. This liquid investment gives you exposure to gold through gold mining operations.
Gold-backed exchange traded funds (ETFs)
Gold ETFs provide you with exposure to gold by tracking the price changes of gold. This allows you to profit from gold price changes without having to own the physical asset. They are structured as listed debentures on the JSE and generally sponsored by a retail bank. Gold ETFs can be accessed via a stockbroker.
Gold derivatives are sophisticated financial instruments whose prices are derived from physical gold. Gold derivatives, such as gold forwards, futures and options, trade on exchanges around the world and over the counter in the private market. The gold derivative itself is a contract between a buyer and seller that wants exposure to the physical gold price. Derivative instruments can also be accessed via a stockbroker.
It’s always the right time to invest to create personal wealth, but as a principle, I’d caution against singling out one type of investment. A diversified investment portfolio is a good foundation for building long-term wealth.