Wednesday, April 21st, 2021

Gold Bullion Investing


An overview on gold bullion investing

23rd October, 2009

Gold has moved into the limelight since it broke out of its sideways range and surpassed the $1000 mark. The resulting media attention has prompted many people to question why gold is going up and to consider the gold investing alternatives. Current US monetary policy is clearly between a rock and a hard place. Capital inflows are needed to service debt requirements but the US economy remains inundated with problems. US interest rates remain stuck at low levels offering little incentive other than funding more attractive carry trade opportunities.[1] Foreign nations and creditors are increasingly concerned about the US dollar predicament. Treasury purchasers display a clear and evident trend of continual decline and a shifting of priority to shorter dated securities. US monetization (blatant money printing) is necessary to take up the shortfall. Gold is being moved from western holding centers and new gold trading hubs are beginning to emerge.[2] A greater role for the BRIC’s and diminishing western control is becoming a dominant theme. China is encouraging citizens to purchase gold and establishing Yuan swap lines with prominent trading partners who can supply China’s voracious appetite for resources. The IMF is coming into focus with SDR’s and China is pushing for a greater share of the voting rights.[3]

gold bullion investing

gold bullion investing

Gold has been going up. It has been going up because the old monetary order is in disarray and demand is increasing as more countries diversify out of the US dollar. Inflation is also a concern due to massive government stimulus measures and the uncertainty of a viable exit strategy. US currency devaluation is visible in plain daylight. Even central banks are diversifying out of the dollar [4] and becoming net buyers of gold.[5] US leaders face a difficult challenge to deal with the economic problems and prevailing pressure on the dollar. The geopolitical stage is being transformed as countries seek to protect their interests. US and UK leaders are operating with the burden of massive debt. Foreign nations are emerging with new alliances and initiatives and there is talk of the need for a new alternative reserve currency.[6] Gold is now a more attractive investment proposition with mint periodic supply shortfalls providing additional supporting evidence of underlying demand.

Determine your gold bullion investment objectives

At the forefront of any gold investment consideration is the need to determine your objectives. How long do you plan to hold the gold and how often do you want to either accumulate further reserves or trade on a short term basis? Gold bullion investment options range from the physical possession of gold bullion ingots, the outright purchase of gold bullion coins, to trading or positioning in futures or gold based securities. Each has its advantages and disadvantages.

Is physical gold bullion ownership important?

If you desire to hold physical possession of the gold then you can own gold bullion through either Australian gold proof sovereigns, mint gold coins or bullion bars. These are readily available via the mints and any authorized dealer network. If you plan on holding larger quantities of gold then you will need to consider your desired level of flexibility including how often you want to buy and sell, the transaction size and whether you have the capacity to store and transport the gold. Keep in mind that once the gold leaves the vaulting circuit you will face quality and purity tests if you decide to sell. This can delay the sale and adds to your transaction costs. These factors are covered in another article that deals with gold storage.

Leverage your gold bullion investing

Futures for gold offer tremendous potential for individuals who can handle the leverage but require a greater degree of control and understanding to participate. You also need to accept that futures exchanges are only open for certain periods of time and may be located outside your resident country. If you know the risks and understand derivatives then futures are ideal for short term moves or for individuals who want to establish a position and manage the move. This is a sophisticated option and not suitable for the average investor.

A new breed of security for investing in gold bullion

Exchange traded funds are a relatively new form of security gaining momentum as a gold bullion investment vehicle. The leading ETF’s buy gold to own it outright and the gold is held in trust. You are essentially purchasing an underlying interest in the physical product. Gold investing ETF’s are trading on many leading exchanges including the USA, UK, Canada, Indian and the Australian markets. You can buy and sell ETF’s the same way you buy and sell shares online or through your service broker. Your exposure is to the movements of gold ETF securities in response to the underlying movements in the price of gold. They are great for short term trading. One drawback of these vehicles is the fact that ETF fund administrative expenses are deducted from the physical gold backing each share. The entitlement on your share certificate remains that same but is subject to this gradual shrinkage that occurs. ETF’s may also be treated differently for taxation purposes requiring consultation with your respective tax jurisdiction if you are considering a longer term holding.

Do gold stocks hold your interest?

Gold stocks trade on worldwide exchanges and offer the potential to appreciate. They are, however, subject to equity market movements and any number of factors that can influence the management or operations of the company. For this reason gold mining shares tend to be considered speculative and require a higher degree of expertise to select and manage. If you are looking for the purest way to gain exposure to price movements in gold bullion they are not the best option.

An online alternative emerges for gold bullion investing

Cost savings provided by the internet now allow the gold bullion investor the opportunity to purchase gold bullion outright in your name with greater convenience, security and flexibility. The gold can also be stored in a choice of three different locations (London, New York or Zurich) and transacted in three different currencies. The ability to transact is available 24/7 via the online interface. Storage costs are minimal and your gold is fully insured. Gold bullion ingot delivery can also be arranged if you desire to leave the vaulting circuit as can telephone transaction capability. The advantage of leaving your gold in your chosen vault location is that it is secure and available for sale at the click of a mouse button.

Review the articles on this site for more information on gold bullion investing alternatives.

Gold Storage Facilities: How to Safely Store Your Gold
Trade Bullion: A New Choice For Gold Bullion & Gold Commodity Trading
Gold vs Inflation: A Historical Perspective and The Current environment For Gold And Inflation

1. U.S. Dollar Attacked by Central Bank Lilliputians Profiting From the Carry Trade

[2] Hong Kong recalls gold reserves, touts high-security vault

[3]Proceeds of yuan bond sale triple offer

[4] Dollar loses reserve status to yen & euro

[5] Central banks seen becoming net gold buyers-expert

[6] UN Says New Currency Is Needed to Fix Broken ‘Confidence Game’

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