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Decided to add some gold exposure into your portfolio but not sure where to begin? Let us explore some of the common ways where one can gain a piece of royalty! |
Buying physical gold
Although a tad bit traditional, physical purchase of gold is still applicable amongst investors who desires to acquire exposure in the royal metal today. Gold for investment purposes are typically of above 99.5% purity and often come in the form of bars, wafers or coins of varying weights. And such investment grade gold is widely available at jewellery shops, authorised gold dealers, as well as banks.
Regardless of which avenue, it is important to note that legitimate sources will only ofer gold with recognised hallmarks and proper stamping. The former refers to the brand of the gold – often the refiner or manufacturer – such as PAMP Suisse and Metalor among others; while the latter refers to the stamping of weight, purity and serial number on the gold product itself. These markings provide added legitimacy which makes it convenient when it comes to converting the gold for cash.
One point to bear in mind though – liquidating your gold is easy, but can be less flexible. For example, there’s no such thing as selling half your gold bar and retaining the other half. So when you sell a larger denominated gold product, you are essentially liquidating a sizable portion of your savings. On the other hand, holding smaller gold pieces would ofer better divisibility and practicality, but smaller pieces often come with higher premiums per gram – which is yet another food for thought.
In addition, as nice as it may be to actually feel and behold in awe your gold possessions, investors should understand that this method may come with additional costs – and sometimes worries – in terms of insuring and storing the physical gold. Although these may seem trivial at a glance, but collectively these factors may become prohibitive in the longer run.
Gold investment accounts
For those who’d prefer the peace of mind of not needing to hold or store physical valuables, setting up a gold investment account through a financial institution would be an alternate option.
To put it simply, a gold account serves as a platform for investors to buy or sell gold with the participating bank. And unlike physical gold investments, this option enables investors to trade in smaller denominations!
Gold investment accounts are convenient – as investors can even monitor their investment via e-banking! However, the deal breaker for many is often the higher buy-sell spread (varies across diferent banks) as compared to other gold investment options such as exchange-traded funds.
Another important point to note is that some gold investment accounts are essentially paper gold investments – which comes with counterparty risks. With paper gold, you do not actually own the gold as the asset is not actually backed by any real metal; you are instead promised by the bank to receive physical gold.
Gold ETFs
A gold exchange-traded fund (“ETF”) is another cost-eficient option for investors who wants to delve into gold investments without getting tangled up by the costs that comes with storing and securing the metal physically.
The accessibility and liquidity that most gold ETFs ofer are pretty much unrivalled given their nature to be openly traded on the stock exchange. And similar to gold investment accounts, a gold ETF would also enable an investor to buy and sell the royal metal in smaller denominations. But what truly sets it apart is its low expense ratio as compared to the many other options that involves entry and exit fees – hence the reason why we think that gold ETFs are a little more desirable in the longer run!
While there are also synthetic gold ETFs that employs derivatives like futures contract or swap notes (i.e. paper gold investment), our attention is skewed towards physical gold ETFs – particularly Shariah-compliant ones. When it comes to Shariah-compliant gold ETFs, each unit must be physically-backed by actual gold and segregated on a fully allocated-basis. This means that the investor would be the legal owner of the gold bought through the ETF.
With all that has been said, gold ETFs – if not most ideal – are at least amongst the top contenders when it comes to gaining exposure in the royal metal. Nonetheless, as the saying goes – the devil is in the detail. So regardless of your option, it is vital to have a clear understanding on the ofering before jumping the gun. Happy investing!
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