I have been working in precious metals and foreign exchange trading for 10 years now, dealing with refineries, banks and third party partners (HV for these transactions) for our company.
My background and perspective therefore allow me to look at different scenarios and explore my decision for physical OR/AND so-called paper money in more detail.
In this text, I am explicitly addressing all investors. No one has found the wisdom of one asset class alone, we act according to our beliefs and ideas and should be objectively open to other forms of asset classes. If you don't know what to do with precious metals, great... then at least you've gotten to know my view of the precious metals market. And you can ultimately benefit from that too... so, have fun with this tl;dr text.
𝑾𝒂𝒔 𝒊𝒔𝒕 𝑮𝒐𝒍𝒍𝒅? 𝑾𝒆𝒍𝒄𝒉𝒆 "𝑭𝒐𝒓𝒎𝒆𝒏" 𝒗𝒐𝒏 𝑮𝒐𝒍𝒅 𝒈𝒊𝒃𝒕 𝒆𝒔? 👨🏫
Gold, [lat. Aurum] chemical element symbol Au with atomic number 79, specific density of 19.3g/cm3
Fun fact: A 24 km long thread can be produced from one gram of gold. 🧵
Gold in the form of bars, coins or even jewelry has been a constant companion in the history of mankind for centuries. Whether as a means of exchange, a means of payment, a production good or, in recent decades, an increasingly sought-after metal for technological progress and development - gold can always be found in these areas.💰
Supporters of the heavy metal derive security, stability of value as well as prosperity and wealth from the long history of gold. Various scenarios and arguments for and against physical or exchange-traded paper gold investments are derived from these assumptions. In addition to physical gold, trading on the stock exchange in the form of forward transactions (options, futures, etc.), index funds and ETCs has been around for several decades. 📈
𝑷𝒉𝒚𝒔𝒊𝒔𝒄𝒉𝒆𝒔 𝑮𝒐𝒍𝒅 🥇
Physical gold is mainly offered as an investment in the form of bars and coins. While bars today are generally subject to a standard (e.g. LBMA, London Bullion Market Association), there is a greater variety of different countries and mints for coins.
Fine gold bars (999.99/1000) are generally offered in denominations of 1g; 2g; 2.5g; 5g; 10g; 20g; 31.1g (1 ounce); 50g; 100g; 250g; 500g; 1000g for private investors. For institutional investors there is also the so-called standard bar with a proud weight of 400 ounces (12440g) of gold (995.00/1000).
There are various refineries and therefore manufacturers of gold bars. The best known are probably Agosi, Heraeus, C.Hafner, Heimerle + Meule, Umicore and Valcambi. These manufacturers are all LBMA-certified and therefore best suited for international trade and tradability. Contrary to popular belief, Degussa is no longer its own bar manufacturer, but issues bars from other manufacturers under license with the well-known sun-moon logo.
In addition to the well-known LBMA-certified bars, there are also other manufacturers such as ESG or Geiger-Edelmetalle. Investors should be careful here, as these bars may be cheaper on average, but are not LBMA-certified and can therefore often only be traded at a discount in (international) trade (i.e. also outside the EU).
LBMA certification is therefore a decisive (marketing) certification for bars and their manufacturers, which guarantees the production conditions, fineness of the bars and weight.
Investment coins, also known as bullion coins, are minted and issued in large quantities by various national mints. Bullion coins are minted with a high fineness and, as a rule, the minting motif does not change annually, but remains constant for a while (see Maple Leaf, Krugerrand, Philharmonic, Britiania, American Eagle etc.). Here too, however, there are exceptions such as the Chinese panda coins, the Australian kangaroo or the Australian bullion coins of the Luna series. The changing motifs of the latter coins enjoy a growing following among collectors due to their annually changing motifs.
One advantage that bullion coins usually have over bars is the fact that bars are traded in so-called blisters or outer packaging. This means that the gold can only be admired in the packaging, but not touched directly. In recent years, it has been possible to admire the idiosyncrasy of the Germans, who value flawless goods (in the past, this also meant unwrapped, naked bars) and also value damage-free packaging (similar to standardized vegetables in the supermarket 🍌 🙄). Precious metal dealers who are active in buying and selling will therefore only buy goods that can be resold and can therefore achieve a good margin. Purchasing from a bank or refinery is comparatively expensive, which is why buying and selling as a margin business is an important mainstay of many gold dealers.
𝑾𝒂𝒓𝒖𝒎 𝒔𝒐𝒍𝒍𝒕𝒆 𝒎𝒂𝒏 𝒊𝒏 𝑷𝒉𝒚𝒔𝒊𝒔𝒄𝒉𝒆𝒔 𝑮𝒐𝒍𝒅 𝒊𝒏𝒗𝒆𝒔𝒕𝒊𝒆𝒓𝒆𝒏?😳
The clientele for physical investment gold can be divided into three groups: Collectors, believers in doom and investors interested in capital preservation. While there is no room for the former in my reasoning (I mean, I could write about the sense or nonsense of collecting - what do I know with my ABSOLUTE collection? 😉), the reasons for the other groups (whether objectively realistic (?!) or purely subjective) can be better described.
People who believe in doom buy gold because they either distrust the state and thus society, recognize the threat of war, see the collapse of the economic system as we know it... of course, other scenarios can also be constructed, which may or may not be taken more or less seriously depending on the character type. Example: These types of people usually also believe that they will eventually exchange a loaf of bread for 1g of gold at the bakery...
Objectively speaking, investors interested in securing value are people who have learned from the historical past of their ancestors or from social experiences (world wars etc.), who see gold as a means of preserving value (often also as an inflation-preserving instrument) and who take the intrinsic value of gold seriously from a historical perspective. The assumption: Gold does not have to generate a return, but in times of inflation or other times of need (often for personal, financial reasons) it should represent a nest egg outside the monetary system.
Example: The broken car needs to be repaired, "I" sell an ounce of gold and can thus pay for the workshop's services with fiat money.
When buying and selling gold, the following always applies: the gold is always worth exactly what you bought it for. Until you sell it either higher or lower.
Advantages of investing in physical gold:
- Anonymous (up to €2,000 can be traded anonymously in Germany; so-called table transaction)
- Physical asset, thus further advantages such as mobile, secure ownership
- Tradable at times independent of the stock exchange
- Quick and easy to trade (liquid)
- Tax-free when sold after a holding period of one year (note: NO TAX ADVICE!)
Disadvantages of investing in physical gold:
- Storage and the associated financial outlay for security through safes or safe deposit boxes (whereby the sense of safe deposit boxes in connection with gold can be questioned, at least if you are a believer in doom...)
- Risk of theft or robbery
- Gold must generally be in perfect condition (including packaging!) in order to receive the dealer's full purchase price
- No active return, assets are tied up
𝑷𝒂𝒑𝒊𝒆𝒓𝒈𝒐𝒍𝒅: 📜
Paper gold refers to gold traded on the stock exchange, i.e. forms of investment without physical gold that are linked to gold. Investors do not receive a claim to a specific gold bar, but only to a specific quantity of the corresponding precious metal.
Classic forms of paper gold are derivatives (options and futures, certificates), ETCs or gold accounts.
For reasons of time and space, I will not look at gold accounts here and will only briefly discuss futures and options, which also belong to the group of certificates.
Anyone trading certificates on gold should be aware that they are not acquiring a piece of gold in the true sense of the word. In legal terms, all certificates are merely bearer bonds. This means that the holder of the bond holds a securitized claim against the issuer (see bonds), which is linked to the gold price or the purchase of gold (often at a ratio of 1:10). The risk: If the issuer becomes insolvent, the bond is also worthless. There is a risk of total loss. Such trading is therefore only suitable for short-term trades and therefore does not correspond to the ideas one might associate with gold.
Investing in so-called ETCs is therefore much more interesting and sensible. Exchange Traded Commodities on gold are close relatives of gold certificates and are also based on the gold price, so legally speaking they are just like debt securities vis-à-vis the issuer. However, there is a crucial difference here:
Physical backing and deposit of gold on the units of the ETC.
As a rule, ETCs are deposited in gold to the nearest gram. This means that when you buy ETCs, you have the right to delivery of the deposited gold. In the event of insolvency, this means that the deposited gold can be sold and the proceeds paid out pro rata to the holders of the bonds. So we have a kind of double bottom here, an anchor.
And this is precisely what makes ETCs so interesting. Holders of such ETCs can have the deposited gold delivered to them at any time (in some cases from one gram). As a rule, this is subject to molding costs (manufacturer's costs, minting costs) and shipping costs, which is why delivery only makes sense above a certain amount.
In other cases, you can simply sell your share of the ETC on the stock exchange like any other financial market vehicle.
The best-known ETCs are probably EUWAX, EUWAX Gold II and Xetra Gold. However, there are also ETCs from Wisdom, Invesco and iShares.
𝑾𝒂𝒓𝒖𝒎 𝒔𝒐𝒍𝒍𝒕𝒆 𝒎𝒂𝒏 𝒊𝒏 𝑷𝒂𝒑𝒊𝒆𝒓𝒈𝒐𝒍𝒅 𝒊𝒏𝒗𝒆𝒔𝒕𝒊𝒆𝒓𝒆𝒏?😳
In contrast to my previous opinion, buying so-called paper gold makes sense if you do not belong to the top three groups of physical gold buyers. Those who buy paper gold tend to use this investment opportunity to calm the fluctuation, i.e. volatility, of their own securities portfolio and to add another asset class with the precious metal. Those who invest in paper gold generally do not believe in the imminent end of the world, but rather that gold plays a key role in the economic cycle of industry or that gold has a low correlation with real assets in the form of shares.
Advantages of investing in gold ETCs (paper gold):
- Easy trading on the stock exchange
- No storage at home or in a safe deposit box
- Often physical deposit with the issuer or a depository with optional delivery option
- Same tax advantage as physical gold if the ETC is backed by gold
Disadvantages of investing in gold ETCs (paper gold):
- Issuer risk
- No immediate physical control over the gold
- Not anonymous
- Only tradable during trading hours
- Sometimes expensive delivery costs
𝑰𝒏 𝒘𝒂𝒔 𝒔𝒐𝒍𝒍𝒕𝒆𝒔𝒕 "𝑫𝑼" 𝒏𝒖𝒏 𝒊𝒏𝒗𝒆𝒔𝒕𝒊𝒆𝒓𝒆𝒏?☝️
When it comes to the question of whether to buy physical gold or paper gold, everyone must listen to their own inner voice. I am not talking here about investors who have a fundamental aversion to gold or precious metals and consider this asset class to be pointless or unreasonable due to a lack of active returns. There is simply no right way or the only true way. Neither with equities nor with ETFs, cryptocurrencies, real estate... and certainly not when deciding whether to invest in precious metals or not in this asset class.
There is a lid for every pot and why shouldn't this apply to entire asset classes?
So whether you choose paper gold or physical gold depends on your investment case. The advantages and disadvantages of both products are almost the same depending on your own preferences and should be taken into account accordingly. Basically, a decision can be derived from the previous characteristics and investment cases. If "you" believe in an imminent end to our economic cycle or would like to hold a "physical store of value" outside the fiat money system, your decision should be in favor of physical gold. If, on the other hand, you want to add diversification and a low-correlation asset to your equity portfolio, paper gold is worth its weight in gold for you. Another scenario for paper gold would also be a savings plan on gold in order to have a physical bar delivered after a t-period. This would result in an average price for a 100g gold bar, for example, which may be lower than the future selling price.
If you want to invest in physical gold, I definitely recommend bars from a size of 10g, but preferably 1 ounce (31.1g). With gold bars, you generally benefit from a lower premium to the gold mid-price than with bullion coins. You should buy coins from half an ounce (15.55g). Below this, the premiums usually become unattractive.
An important point on the subject of "anonymous table trading". I regularly observe the most absurd situations in my everyday life. There are people who are of the opinion that we, as precious metal dealers, report every transaction to the local tax office or that the state will confiscate "your" gold tomorrow.
I can say here and now that none of this is true, and if we were that far gone, we would certainly have completely different problems in this country.
There will be no unfounded reports to the tax office, customs, BaFin or FIU, nor is the state necessarily interested in you. Just get yourself registered once in accordance with the GWG regulations and that's it. If "you" push around at the counter, obviously want to stay under the 1,999.99 euros or even try to buy under this limit more often - then you are making yourself conspicuous and suspicious. The Money Laundering Act serves to combat terrorist financing and to uncover sources of illicit money. This is exactly when the notification chain is set in motion. All of this surely affects very few of us... so a pure recording obligation under the Money Laundering Act should and should be absolutely irrelevant and negligible for most people. Last but not least, take a look at your bank's regulations. They already identify you when you open a savings account or your current account without any euros having been deposited into your account. The same applies to the Money Laundering Act. So it's all half as bad.
𝑾𝒊𝒆𝒆 𝒊𝒏𝒗𝒆𝒔𝒕𝒊𝒆𝒓𝒆 𝒊𝒄𝒉 𝒑𝒆𝒓𝒔ö𝒏𝒍𝒊𝒄𝒉 𝒊𝒏 𝑮𝒐𝒍𝒅?🙄
I have a natural attachment to physical gold due to my profession and also hold this myself in my own overall portfolio. The share is currently around 2% and is therefore rather underrepresented. This was definitely different in the past, where I sometimes had an allocation of up to 30%. That is definitely too much for me too. I hold physical gold because I see it as a "metal piggy bank". It's the famous case of "a broken washing machine", just when the ATM or my bank's online banking fails. I also always carry a 5g bar of gold around in my wallet. Somehow this is a quirk of us precious metal dealers.
In the course of my research and my thoughts about increasing my share of precious metals in my overall portfolio, I looked into the EUWAX Gold II and Xetra Gold products.
I decided to invest a small monthly savings plan in the EUWAX Gold II product.
The following arguments were decisive for me:
1. I do not believe in the collapse of our economic system and would like to use the gold ETC as a means of diversification, as well as an anchor in my portfolio. If I believed in a collapse, I would have to liquidate my entire portfolio immediately...
2. my share of precious metals in the overall portfolio should be around 5-10% again. Storing this amount of gold somewhere seems too expensive and, above all, unsafe.
3) I plan to hold about 30% of my precious metal portfolio in physical metal, the rest is to be covered by ETCs.
4. EUWAX Gold II offers a gram-precise securitization of gold, as well as delivery options
5. the issuer of the ETC is the Stuttgart Stock Exchange with its company Stuttgart Securities GmbH, making it very trustworthy and liquid for me
6. in contrast to XETRA Gold, there is NO FEE for the safekeeping of the gold! With XETRA Gold you pay storage costs of 0.36% of the deposited gold value... a mischievous person who thinks evil.
7 EUWAX GOLD II is treated tax-free by my broker when sold. As with physical gold, there is no tax deduction on sale or redemption if the shares are held for more than one year. (ATTENTION: NO TAX ADVICE!)
@Fazit: 🧐
Many roads lead to Rome. Anyone who thinks or at least believes in precious metals and their function as a raw material for the economy, inflation protection or store of value should choose one of the two options for an investment. In addition to the assumptions or reasons mentioned in the text, your own risk tolerance and investment horizon (precious metals should also be considered for an investment period of at least 10 years) as well as your own return expectations should also be taken into account. Precious metals should not account for more than 10% of a well-diversified portfolio.
As always, I wish you every success. 🍀 And a golden touch.🤌
Collection of links:
Portal for comparing selling and buying prices at gold dealers:
Gold ETCs eligible for savings plans: https://www.justetf.com/de/find-etf.html?query=Gold&assetClass=class-preciousMetals&resetPage=true&spc=all
EUWAX Gold II: https://www.euwax-gold.de/ewg2ld/
Short and sweet, Finanzen.de on gold certificates: https://www.finanzen.net/ratgeber/wertpapiere/gold-zertifikate
Summary of the current Money Laundering Act: https://www.financescout24.de/wissen/ratgeber/geldwaeschegesetz
Tax information on gold: https://blog.handelsblatt.com/steuerboard/2021/09/07/besteuerung-von-investitionen-in-gold/
[This text is based on my own opinion and experience. I do not give tax advice, nor can I assess the individual risk appetite and available capital of the reader. "YOU" trade with "YOUR OWN" money and therefore take "SOLE RESPONSIBILITY" for loss or profit]. yes
