Seamus Fahy, Co-founder of Merrion Vaults on Sky News discussing increase in Safe Deposit Box & Gold Bullion demand due to Brexit.
As gold hits a 5 month high (at time of writing) Investment commentators worldwide are all agreeing on one thing: it appears that the ‘perfect storm’ is on the horizon for this safe-haven asset.
Most investors will know, historically the price of gold rises in times of Political and Economic unease. With Geo-political tensions currently rising throughout the world due to tensions between the U.S., North Korea and Russia, investors seem to be running to the safe-haven asset of gold.
Let’s not forget the element of Brexit, also in-motion but with no clear roadmap as to how that will pan out yet. In France, Le Pen and the upcoming elections there, will further shake up the economic landscape depending on that outcome.
This uncertainty is supporting physical demand for gold, with holdings in SPDR Gold Shares, the largest exchange-traded fund backed by gold, rising 4.2 metric tons to 842.4 tons as of Tuesday. That’s the highest in more than a month.
The simple fact is in times of turmoil gold tends to go upwards in price. The past has shown that gold is a great hedge, when stocks & shares markets are falling your gold should then be performing well…this is the very essence of a good financial hedge.
When it comes to precious metals though, the most regular advice is to buy and own PHYSICAL metals. With what appears to be ‘the perfect storm’ forming for the price of gold to increase, the Bulls are on the prowl and smart investors are following suit putting their money on gold.
As J.P. Morgan once said – “Money is gold, and nothing else.”
Head of Trading
Gold Coins V Gold Bars
People often ask what the difference is between buying gold coins and buying gold bars, or bullion, as it is known in the industry. There are a number of differences and reasons why investors buy one over the other. Whether you are starting out as a gold investor, or whether you are a seasoned investor, our main piece of advice is always: do your research first.
We must preface this editorial with the fact that we are not giving financial advice here, we are purely giving advice on which type of gold product to buy to suit your needs.
Gold bars or bullion come in a variety of sizes and weights from 1 gram all the way up to 1 Kilogram bars. There are larger bars than 1 Kilogram, but these are generally only traded between banks and governments. The most common size for starter investors would be 1 ounce bars – there are 31.1 grams in 1 Troy ounce of gold. Bullion is always 24 carat gold 999.9 (Four-nines) purity. One should always only buy bars from LBMA (London Bullion Market Association) approved refinery’s. If you are looking to buy gold purely for investment purposes we would always recommend buying bullion. Some reasons for this are as follows; not only is the gold bar attractive in terms of appearance but the premiums are lower on bars when compared to coins as the production costs are lower. This lower premium also applies to the different sizes of the bars, as a one kilo gold bar will include a lower manufacturing cost than 10 x 100 gram gold bars. In this example, purchasing a 1 kilo bar opposed to 10 x 100g would save about 1%-1.5% in monetary terms.
Although the size of the bar you decide on will have an influence on the price you will pay, you should also take into consideration how flexible you want to be in terms of realising your assets. Smaller bars such as 1 ounce, 50g or 100g can be beneficial when re-selling gold bars, such as releasing some of your investment or part-selling. Additionally when buying/selling one big amount of gold, you will face larger exposure to market risk as you will typically be trading on one gold price. When purchasing smaller bars such as the 1ounce gold bar, you will again face the higher premiums as packaging, serial and matching certificates will need to be produced.
There are many different types of coins to choose from. This gives you greater choice in sizes, carats and designs. Coins are also very flexible in terms of re-selling, as smaller units of gold are easy to release when in need of quick access to cash. Another benefit with certain coins such as Britannia’s and Sovereigns are that they are CGT (Capital Gains Tax) Free. Selling coins also give you more flexibility as you do not have to sell everything at once, which gives you lower market risk as you are not selling on one gold price. Certain coins such as the Gold Sovereign also hold collectible value and over time these coins may accrue numismatic value which can increase your original investment. There are many other coins including the Krugerrand, which is one of the most widely traded coins in the world, that tend to attract a smaller premium when buying.
The downside to buying coins are that there is a ’minting charge’ on coins so they will generally cost more than bullion weight-to-weight. The difference is not a lot on small quantities but it will start to add up the more you buy. For instance; if you buy 3 X 1oz Gold Maple coins they will cost you approx.. €20 per coin more than buying 3 X 1oz bullion bars – think about that: both purchases are 3oz’s of 24 carat gold yet the coins are costing you in total €60 more…purely because they are coins. If you go to sell/or scrap the coins/bars you will get a price on the weight so you will not realise this price difference when you go to sell. Coins also do not come with certificates and not all coins are 24 carat (as many are 22 carat or even less for some coins). This can cause larger difficulty when calculating the worth of the coins. From an investment perspective, coins entitle larger premium when compared to larger bars which means that you will get less gold for what you pay. Investing in 32 x 1 ounce gold coins opposed to 1 x 1kg gold bar creates an obstacle if one wants to store the entire investment in one location (eg. safe deposit box).
Our advice on which gold product can be summed up by asking yourself: are you buying purely for investment reasons? Or are you buying to have a nice collection of gold to look at and keep or give as gifts?….If your reason is the latter – buy coins. If the former – buy bars/bullion.
For any further questions regarding buying bullion bars and bullion coins, or to get an instant price on a gold purchase contact our trading desk on: +353 (0)1 254 7901 or visit us at Merrion Vaults in Dublin.
To view our website please click here: https://www.merriongold.ie
Head of Trading
Gold has a reputation as being one of the most solid investments in comparison to other options. People have come to rely on gold’s stability, especially during times when the economy is at a downturn. Even banks and financial institutions use gold as their standard (the ‘Gold Standard‘). Many people try to figure out when is the best time to buy gold. The fact is, even if gold prices are at an all-time high, it is still a good investment as part of your diversified portfolio. Gold is something that you can buy and hold physically. It does not lose value based on what the Federal Reserve does or the fluctuation of your country’s currency. Gold is recognised as a standard around the world, and this is what makes it so attractive.
There is no lack of demand for gold around the world. Mining companies are racing to keep up with the demand, but mining technology has really not improved for quiet a while now. So, it will be inevitable that demand will surpass gold production eventually, driving up the price even higher.
As mentioned, gold can be a solid part of your diversified portfolio. Financial experts suggest that between 3 to 10 percent of your portfolio should be invested in gold. It is a way to preserve part of your capital during times of uncertainty. Gold prices may move a little, but not nearly as much as the equity market.
Instead of trying to find a time when to buy gold, you should consider the recommended method, which is ‘dollar cost averaging’. In this approach, you decide how much money you want to allocate every month towards gold purchase. The price of gold is not part of the equation because over the long run, dollar cost averaging will even out any upswings or downswings in gold prices along the way. This spreads out the risk over the long term.
Once you have decided that you want to buy gold, you have to decide in what form you want to buy it? There are several investment options:
– You can buy physical gold in various forms. Gold bars can be purchased in different sizes from grams to ounces to kilos. Gold coins include the Krugerrand, American Eagle, American Buffalo, and Canadian Maple and more. You pay for the weight of the gold plus a ‘minting charge’ with coins, and the denomination that is stamped on the coin is just symbolic. You can also buy gold jewellery. Do remember that when you buy physical gold, there is usually a premium attached to the price. The rule of thumb is to buy physical gold at a price as close to the spot price as possible. The spot price is the market price of gold at a specific time. It is based on the latest average bid price on the trading market. For the physical gold to be a good investment, the premium should not be higher than 10 percent of the spot price. If you pay a premium higher than that, your gold has to appreciate that much more in order to give you a good return.
– You can buy shares in gold exchange-traded funds, or ETFs. When you invest in gold ETFs, you are buying shares of the fund that is backed by physical gold, but you do not have possession of the gold itself. You can buy and sell your shares on a stock exchange, as you would buy and sell other types of stocks. Some investors like the convenience of this approach, but others feel it does not offer the same ‘solid’ investment as physical gold.
– You can buy shares in a gold mutual fund. In this method, you do not invest directly in the metal, but you are purchasing stocks of the mining companies who are producing the gold. This method actually carries higher risk because your returns are based on the performance of the companies rather than gold. You are counting on these mining companies to have gold strikes and produce a healthy amount of gold. If the mining company has a small gold strike, their profits will be lower, and your return will be smaller. Look for larger, more established companies that have a good track record of gold production.
Gold has been a solid choice for investors looking for a way to preserve their capital. You should not try to time the market in an attempt to find the perfect time for when to buy gold. This precious metal is a smart investment for any investor, at any time.