Gold: To have and to hold...

Tuesday 18 January 2022

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• What is paper gold

• Gold: To have and to hold…

  

Shae Russell,
Group Communications Manager

Dear Investor,

Welcome back to a new year, I hope you enjoyed a lovely break with your family and friends.

Today, we get back to the basics of all things precious metals.

Now, I’ve been talking about the benefits of owning gold for over a decade.

Whenever people find out what I do for a crust one thing that never fails to surprise me is how few people invest in precious metals. They aren’t alone though. Many people don’t know where to start when it comes to buying physical gold.

Well, that’s where I come in…

What is paper gold?

If you’re new to gold, think of buying physical bullion like swapping one currency for another.

After all, gold has a very long history of being money.

When it comes to buying gold though, not everyone wants to buy physical gold.

After all, you can only buy physical gold in fixed sizes. The gold price is dynamic, so you don’t always catch the best price either. All gold bars – be it minted tablets, cast bars or coins – have a premium added on top of the spot price. If you want to sell your physical gold you need to visit your bullion dealer in person.

Finally, as I’ve explained before, safe and secure storage is imperative if you choose to own physical gold.

Even though I’ve been buying physical bullion for over ten years now – and my kids now convert their savings into gold – I understand that owning the physical stuff isn’t for everyone.

ABC Bullion has a wide range of sizes

Nonetheless, investors don’t want to miss out the enormous opportunities gold’s price movements can bring, so some look to ‘paper gold’ options. One way investors have looked to benefit from a moving gold price is through paper gold investments such as a gold backed exchange traded fund (ETF).

Buying a gold backed ETF is very similar to buying shares, so anyone who is familiar with shares may look at this option first. While a gold backed ETF can be convenient, gold related ETFs come with ongoing management fees (which vary between providers) on top of the brokerage your charged to buy and sell an ETF.

Importantly, there is generally some sort hedging component built into gold backed ETFs to smooth out currency movements (between the US dollar and Aussie dollar for example), and sometimes gold backed ETFs can lag the real gold price move.

Now let me be clear. A gold backed ETF is not the same as owning physical gold. Rather, a gold backed ETF is about having ‘exposure’ to changes in the spot price, with no claim to any of the gold.

To overcome these pitfalls, there is a way you can have exposure to the gold price and get access to the physical precious metal when it suits you…

To have and to hold… ​

This is where ‘pooled’ bullion products come in.

Pool allocated storage means you can buy gold for example, but don’t take physical delivery of it.

Rather than buying a specific physical bar, investors buy a ‘share’ in a pool of gold (or silver and platinum!).

This is a great alternative to a gold related ETF, as you can start small and build your position in slowly.

Unlike ETFs, with pool allocated you aren’t locked into a fixed unit of measurement. Plus, ETFs have both a brokerage cost and an ongoing management fee. ABC Bullion’s pool allocated only has a fee when you buy or sell your gold. That’s it.

Say you want five ounces of gold, if you select pool allocated, you will have a claim to five ounces of bullion. You don’t ‘own’ any particular bar, rather you have a claim to a total weight of gold.

Alternatively, you set a limit — say $15,000 — and you buy the dollar value weight equivalent of pool allocated gold.

With a pool allocated product, you can invest either based on weight or dollar value. You have the power to choose what suits your investing profile.

Pool allocated gold is popular way to get exposure to the gold price and it comes with no storage fees.

Perhaps most importantly — and unlike paper gold —ABC Bullion’s pool allocated account, you can request to withdraw from the pool allocated at any time and convert your holdings into physical gold bars at any time. You can’t do this with an ETF.

All you need to do is pay a barring premium and then organise delivery or collection. Simple.

Until next time,

Shae Russell
Group Communications Manager,
For ABC Bullion