In recent years, gold has risen to prominence as a favoured investment option, outshining traditional assets such as shares over the last few years. We believe gold is an essential part of an investment portfolio. We think all super funds should include gold within their asset mix and why gold is part of Stockspot super.
Why invest in gold?
Gold is a valuable asset that helps diversify portfolios, protect against inflation, and hedge against market volatility. Australian investors have multiple ways to gain exposure to gold, each with its pros and cons. In this article, we break down the three main methods for investors buying gold in Australia.
Buying physical gold (bars and coins)
The first strategy we’ll explore involves visiting a local bullion dealer to purchase physical gold in the form of bars or coins. This traditional method offers tangible assets that you can hold in your hand, much like cash. However, like storing large amounts of cash, physical gold requires safe and secure storage, and any associated insurance, to protect against theft or loss. This often results in considerable storage costs and can introduce further complications, making it a less practical approach for most investors.
Pros:
- Full ownership of a tangible asset
- No counterparty risk
- Can be stored privately
Cons:
- Requires secure storage (safe deposit boxes or vaults)
- Higher transaction and insurance costs
- Less liquid than other forms of gold investments
Investing in gold mining companies
The second method to consider involves buying shares in gold mining companies such as Newcrest or Evolution Mining. At first glance, this may seem simple; as gold prices rise, your shares should, theoretically, appreciate as companies that mine and produce gold tend to benefit when gold prices rise. However, remember that an investment in these companies also exposes you to their operational efficiency and stability. Any setbacks like operational issues or mine closures can significantly affect their share prices, regardless of the current gold price. Thus, this method may not provide a direct correlation with the gold market.
Pros:
- Some mining stocks pay dividends
- Can outperform gold in a bull market
Cons:
- Investors are exposed to company-specific risks (operational, regulatory, or environmental factors)
- Stock price movements can be more volatile than gold prices
Opting for gold exchange traded funds on the ASX (ETFs)
Our recommended approach is the third strategy: investing in gold exchange traded funds, commonly known as ETFs. ETFs track the price of gold through ownership of physical gold stored securely in vaults. As an ETF investor, you’re essentially buying a piece of that gold. This method allows you to reap the benefits of gold ownership without the storage and security hassles. ETFs also offer simplified buying and selling processes and the low management fees include insurance and storage costs, providing you with peace of mind.
ETFs also offer greater liquidity and ease when buying and selling compared to physical gold. They are traded on the ASX and can be bought and sold like a normal stock.
Pros:
- No need for physical storage
- Lower management fees than actively managed funds
- Highly liquid and easy to buy/sell
Cons:
- Indirect ownership (you don’t physically hold the gold)
- Subject to management fees
Frequently Asked Questions (FAQs)
1. Is gold a good investment in Australia?
Yes. Gold has historically been a safe-haven asset, protecting against inflation and economic downturns, helping to minimise the extreme downturns in portfolios during periods of market volatility.
2. Where can I store physical gold?
You can store gold in private safes, bank deposit boxes, or secure vault services provided by bullion dealers. Physical gold requires physical safe storage, however you should also be aware of the ownership structure of your ETF, if you decide to invest in non-physical gold.
3. What is the easiest way to invest in gold?
Gold ETFs offer the easiest and most cost-effective way to gain exposure to gold without dealing with physical storage.
In this article we also compare the best gold ETF available on the ASX.
Conclusion
Looking to invest in gold as part of your investment portfolio? All Stockspot portfolios have an allocation to gold. If you’re interested in a core-satellite approach with extra exposure to precious metals, Stockspot Themes offers additional gold and silver options to help grow your wealth.
Learn how we can help you diversify and grow your portfolio.
