Deep, deep dive
What to look out for when investing in gold
- Ways to invest
Five common ways to invest in gold are:
- Physical gold
- Gold-backed Exchange Traded Funds (ETFs)
- Gold Investment Accounts
- Internet Investment Gold
- Gold-related stocks
- Who owns the gold?
There are two types of gold ownership – allocated and unallocated. Allocated gold is when you are the owner. Unallocated gold is when the company you’ve invested in owns the gold. An example of allocated gold is when you buy physical gold. An example of unallocated gold is when you open a Gold Investment Account with a bank. Here the bank owns the gold and not you, which is why it is unallocated.
Allocated gold gives you the comfort of knowing the gold belongs to you. However, this usually comes with more fees like storage fees and insurance fees to keep the gold safe. Or if you keep it at home, you’ll probably have to buy a safe to store the gold. For example, when you buy physical gold, you are the owner of the gold hence it is allocated.
With unallocated gold, you pay less in fees, as you don’t have to pay for storage or insurance, which makes it a cheaper way to invest in gold.For example, But it can be more risky because if the company shuts down, you might lose your investment.
So if you prefer to have the security of knowing your investment is safe, consider using an allocated gold investing method. If you just want to pay less in fees and don’t mind the higher risk, you could consider an unallocated gold investing method.
A spread is the difference between the spot price (global market price) of gold and the price you buy or sell your gold. All methods of investing in gold charge you a spread but some may charge a larger spread than the others. A larger spread would mean you have to pay more to buy gold. A smaller spread would mean you’ll be paying closer to the spot price when buying gold.
For example, if the global market price of gold is RM252 per gram, you might have to pay RM254 per gram for it, which is RM2 more than the market price. Or when you sell your gold, you might have to sell at a lower price of RM250 per gram, which is RM2 lower than the market price. So find an investment with the smallest difference to help you save on cost.
Liquidity means how quickly you can sell off an investment for cash. Depending on how you invest in gold, it can be easier or more difficult to sell. For example, selling physical gold is more difficult than selling a gold-backed ETF, mainly because with physical gold, you need to find a buyer, and carry your gold with you to make the sale. With ETFs, you can sell your gold investment over an exchange like Bursa Malaysia, just like buying and selling stocks. So, if you’ll need to quickly turn your investment to cash, be sure to pick a more liquid investment.
As gold is a valuable item, it’s important to insure it for things like theft. Not all gold investments are insured. So depending on how you invest, the company may have insured the gold for you or you may have to insure the gold yourself. So it’s important to check!