Buying gold: valuable tips for investing

Gold is something special. For thousands of years, it has been associated with wealth, power and fame. Gold is still popular today – in the form of jewelry or as an investment. If you, as an investor, want to include gold in your portfolio, there are a few details you should pay attention to.

Gold has always been considered a relatively safe investment because, despite price fluctuations, its value is very stable. The price of gold often moves in the opposite direction to the stock market and interest rates. Thus, investing in gold is a type of insurance against inflation or downturns on the stock market. The last few decades have shown that the value of gold is rarely affected by major global crises over the long term, and in fact tends to benefit from them. As a result, gold can provide a safe haven as a complement to a portfolio when other asset classes are faltering.

If you want to invest in gold, various opportunities are available to you. You can choose between direct and indirect investment. Gold that investors physically acquire, such as gold bars or coins, is considered to be a direct investment. Indirect investments are those where investors benefit from the price of gold but do not directly own it. This includes a metal account, listed securities or gold mining stocks, for example.

An indirect investment should always track the price of gold closely and have low ongoing costs. Unlike funds or stocks that are not tied to a commodity, gold does not pay a return.

Basically, any investor can buy gold. While gold does not offer excellent performance, it is relatively safe. Experts generally recommend a holding of 5 to 10 percent. This allows you to diversify your portfolio by including gold as an additional asset class.

There is a wide market for gold – both analog and digital. Gold bars or coins are mostly sold by dealers who specialize in precious metals. You can also purchase gold from banks. All the major companies from which gold can be bought directly are now online, making the purchase process even easier.

ETFs, stocks or funds that invest in gold can be purchased in the usual way from your bank or a broker. The same regulations apply here as with other commodity funds or comparable stocks.

The gold trade naturally offers potential for counterfeiting. However, there are ways to avoid this risk. Stocks and ETFs are safest because they are subject to the regulations of the respective markets.

When buying gold bars or coins, you should always ensure you receive a certificate. As well as guaranteeing authenticity and quality, it is also essential for resale and follow-up. LBMA-certified manufacturers are subject to a strict auditing process. The London Bullion Market Association is the largest over-the-counter trading platform for physical gold. Producers who want to offer their gold here are reassessed every three years. The LBMA certificate guarantees the authenticity and quality of the gold and is published in the form of a constantly updated list rather than a hallmark.

Buying gold through banks is also a safe option. The banks have already tested the gold, which offers protection for clients.

Besides counterfeits, there are other potential pitfalls for investors that need to be avoided.

You should not buy gold directly in denominations that are too small since these can be difficult to resell. In addition, production costs can be significantly higher than the actual price of gold.

It is also important that you take currency risk into account when investing in gold. The price of gold is always tied to the US dollar. If the dollar falls in value, the value of gold increases. Conversely, the price of gold falls when the dollar becomes more expensive.

You should always make sure that ETFs are backed by physical gold since only then do you have the right to actual delivery and the investor protection provisions that protect you from loss. By contrast, synthetically replicating ETFs do not buy physical gold but replicate its price performance with financial transactions (swaps).

Direct investment in gold offers a significant tax advantage because, as a rule, physical gold is not subject to VAT. Like all assets, gold bars and coins must be declared in your tax return. To be exempt from VAT, gold bullion must have a fineness of at least 995/1,000 and gold coins must be government-minted. The sale of physical gold is tax-free if it has been in your possession for at least one year.

In the case of indirect investment in gold ETFs, the fact that they do not generate ongoing income has tax implications because where there are no distributions, no income tax is due. Wealth tax, however, is payable.

Gold can be a meaningful addition to a broadly diversified portfolio, as its value is more stable than other asset types and offers higher protection against inflation. It is therefore a popular way to invest money, especially in times of crisis.

As an investor, you should be aware that gold has some peculiarities compared to other financial products on the capital market – from the lack of ongoing income and dependence on price fluctuations to the various investment and storage options and its tax treatment. However, with the right strategy, gold can be a valuable part of a portfolio.