HOW TO INVEST AND BUY GOLD
04 / April / 23 Visitors: 155
Why invest in gold?
Gold, a safe haven and a countercyclical asset
Unlike the stock market or real estate investments, gold does not create wealth. Owning gold does not create dividends or rents. So why invest in gold?
The main reason is that gold is a safe haven. For centuries, the precious metal has been used as a medium of exchange. In fact, even though the gold standard ended in 1971, central banks around the world hold the largest reserves of gold. For example, central banks in the eurozone hold a total of over 10,000 tons of gold in their vaults. It's a way of building confidence in the currency.
And in times of crisis, when investor confidence is undermined, this is the feature they are looking for: gold has always been and will always be valuable. During bank panics, many savers have the reflex to empty their bank accounts in order to hold bills or buy "real and tangible" gold!
Thus, in managing your assets, gold can act as a shock absorber during a crisis. When stocks fall, the price of gold tends to rise: gold is said to be a countercyclical asset.
While the inverse correlation between gold and stocks is not perfect, it is notable that gold rose during the collapse of the dot-com bubble, the subprime crisis and the Covid-19 crisis.
Investing in gold to protect against inflation
Bank money can be created endlessly. It is known as money creation or, more prosaically, as "money printing. But creating too much money depreciates its value. In other words, it creates inflation.
In contrast, gold is present on earth in finite quantities. Its value cannot be manipulated. The purchasing power of a gram of gold is stable, unlike the purchasing power of the euro, which tends to decrease over time. This means that if inflation is high, the price of gold will tend to rise.
Therefore, you can use gold as a hedge against future inflation. However, in the event of moderate inflation, stocks will protect you better because rising prices are embedded in rising corporate profits. Historically, gold has played its protective role mainly during periods of hyperinflation, or at least very high inflation.
How do I buy physical gold?
The first way to invest in gold is to buy gold in the form of bullion or coins. This gives you a recognized currency outside of the banking system, which may make it safer for some of you. However, make sure you have a place to store your gold that is safe from theft!
You should also distinguish between investment gold (which must have a purity of more than 995 thousandths for bullion and not subject to VAT) and commercial gold, which is contained in jewelry or some gold coins.
Buying gold by bank transfer
You can buy gold at the counter for buying and selling precious metals. You will pay a surcharge for the amount of gold you buy. The surcharge is the difference between the sale price and the price of gold. It is the seller's remuneration. The amount of the surcharge depends on the dealer, the amount of gold you are buying, the quality of the coin and its rarity:
- for a 1 kg gold bar, expect a premium of less than 2%;
- for a 50 gram bar, expect a premium of about 3%;
Which is better - buy gold coins or bars?
The premium will be lower for larger amounts of gold. This is the advantage of buying bullion "in bulk." But bullion has more than just advantages:
- Their price is not available to everyone,
- they can't be split.
On the other hand, by buying coins, you can buy smaller amounts of gold and resell some of them when you need cash.
In this case, it is advisable to buy the most standard and common coins on the market, whose price will not depend on collectors' demand, but only on the price of gold. They will also be more readily available for purchase.
Here is an incomplete selection:
- The Krugerrand is a one troy ounce (33.94 g) coin that has been minted since 1967. It is very recent and therefore still in good condition.
- Napoleon's 20 francs, issued between 1803 and 1898, is a very liquid coin in the French market with its small size as it weighs 6.45 g ;
- The 50 pesos, also known as the Centenario, minted to mark the centennial of Mexican independence, is a large coin weighing 41.66 g and is easily traded internationally.
- The 20 franc Suisse, the Swiss alter ego of Napoleon's 20 francs, this coin weighs the same and is world famous.
For bullion, make sure that their purity is above 99.95% and for coins, 90.00%, otherwise they will not be considered investment gold. Remember to store them in good conditions and in an airtight container.
Buying gold online
Nowadays, there are many websites offering to buy and sell gold. The advantage of these sites is that direct competition allows them to set lower prices than in stores.
Most gold selling websites deliver with insurance in case of loss or theft until you receive the goods. So you have nothing to worry about, but be sure to check the shipping terms.
Taxation of pure gold
When you buy investment gold, it is exempt from VAT (art. 298 A CGI). At resale, two regimes coexist:
Taxation under the capital gains regime: 36.2% (19% tax and 17.2% social security contributions). After 3 years of ownership, you accumulate a 5% surcharge each year, so that after 22 years your gold is completely exempt from tax (but not from social security contributions!). Please note that this assumes that :
your gold is fully traceable (numbered bullion, sealed piece);
you are the buyer and reseller of the gold (nominal invoice).
Precious metals tax: 11% on the total amount resold, regardless of whether you have a capital gain or loss.
Be sure to keep the documents you receive when you buy gold so that you can take advantage of the more favorable capital gains treatment.
Keeping your gold clean
Once you have purchased gold, there is the question of storing it, and it is advisable to provide for this! You have a choice:
- A very good stash house (beware of the risk of fire)
- Use the services of a professional storage company. Of course there are safes in some bank branches, but also security services offered by some online selling sites that will give you at least as good security
How to buy "paper" gold
Buying pure gold may be limited because holding gold poses a risk of tampering, loss or theft. Buying pure gold also involves a lot of expense. Fortunately, you don't have to have "solid" gold to invest in gold. There are several financial instruments that allow you to replicate the price of the yellow metal.
Investing in gold through ETFs
ETFs (Exchanged Traded Funds) are listed investment funds that replicate a stock market index. There are two types of ETFs for investing in gold:
- ETFs that invest in baskets of gold mining stocks (gold mining and exploration companies);
- ETFs that invest in gold futures contracts and seek to replicate the gold price. These are known as ETCs (Exchanged Traded Commodities).
For an accurate replication of gold prices, prefer the second type of ETF.
Here's a selection of ETFs that reflect the price of gold:
- Amundi Physical Gold (ISIN: FR0013416716)
- Xtrackers Physical Gold ETC (ISIN: DE000A1E0HR8)
- Wisdom Tree Physical Gold (ISIN: JE00B1VS3770)
You should know that some life insurance policies also allow you to invest in gold. And also, that you can invest in gold from a simple securities account from the comfort of your home!
For your safety, we have compiled a complete list of unscrupulous brokers.