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How to Invest in Physical Gold?


Gold is one of the assets most appreciated by investors, especially in times of uncertainty in the markets and instability in the global geopolitical landscape, such as those we are experiencing right now. Among its virtues is its character as an active refuge, its immediate liquidity and its ability to maintain its value over time. Therefore, investing in gold is a wise decision. Now, given the many formulas that exist for this, which is the most appropriate?

Therefore, the objective of this post is to explain in the simplest possible way what the different formulas of investment in physical gold consist of and what are their main advantages and disadvantages. Then, the decision will be left to the investor.

Physical Gold vs. Paper Gold

First of all, it is necessary to clarify that, when talking about investing in gold, we may be referring to very different things. Investment media routinely use expressions such as “physical gold” and “paper gold.” We will explain what each one is.

When we speak of physical gold, we are referring to investment gold in the form of bullion, investment coins (also called “bullion”) and, to a lesser extent, jewelry. It is gold that the investor can hold, touch and appreciate its brilliance.

Faced with this physical gold, the evolution of financial technology in recent years has created a new category: the so-called “paper gold”. Under this term (which in many cases is used pejoratively), it encompasses a whole series of financial products that have gold as the underlying or reference, but which in reality does not reach investors in physical form.

There is a widening range of these products, generated by financial engineering with the aim of attracting investors who are reluctant to gold in its physical form: ETF (Exchange-Traded Funds), investment funds, certificates, warrants, futures contracts, digital gold or even the shares of the mining companies that extract the metal … These are financial products in which gold plays the role of a benchmark or underlying index, which we will explain in detail in a future post.

Ways to Invest in Physical Gold

There are at least four main formulas for investing in physical gold: bullion, investment or bullion coins, jewelry, and purchase plans.

Gold bars

The image of a bullion is the first thing that comes to our mind when we talk about investing in gold. It is its most characteristic form lingot 1kg , which has been mythologized for years in film and television.

Gold bars have multiple advantages: being considered investment gold, they are exempt from VAT in the European Union; they are usually of high purity (.999 or .9999); they are the most direct way of having exposure to the gold market; Due to its manufacturing process, the premiums paid on the metal price are very small; there are numerous sizes; they never lose their value, no matter how many years pass; and its liquidity, in case of sale, is practically immediate.

Its multiplicity of formats is one of its great strengths, since it allows adapting the investment to different pockets and even making the portfolio more flexible, with partial sales depending on the needs. Ingots of weights ranging from one gram to 12.4 kilos are manufactured (the 400-ounce banknotes, which are housed in bank vaults).

Investment Currencies or Bullion

Another way to invest in physical gold is through the acquisition of investment currencies or bullion. As we have already seen in another post on this blog, the bullion or investment coin is a piece that is intended, as its name indicates, to serve as an investment object. In other words, its importance is the quantity of precious metal it contains and its level of purity, rather than the possible numismatic value it may have depending on its design, the year of issue or other factors.

Because their purpose is to serve as an investment, these coins have the metal they are made of, their purity and weight reflected on their reverse sides, normally expressed in troy ounces (31.10 grams).

On the other hand, in the circulating currencies all these data are not reflected, since they appear in the currency minting laws of the country that has issued them.

Among the advantages of investing in physical gold through investment currencies is the flexibility that this implies, since most of the bullion on the market offer fractions of an ounce, up to a minimum of 1/10 oz, that is, just over three grams, which makes them accessible to the most modest investors.

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