The purchase of gold bars is recommended

Gold as an investment: is it worth investing?

Annette de los Santos, April 13th, 2021

In times of political instability and unrest and in view of the sometimes strong and difficult to predict fluctuations in the global financial markets, the question arises again and again as to whether and to what extent gold makes sense as an investment.

Gold is the only non-substitutable raw material. In addition, physical gold, especially in the form of coins, is transportable and suitable as a means of payment in an emergency. In addition to the function of physical gold to maintain value, protect against inflation and, in the worst case, even as a currency in crisis, there are many other ways of investing “in gold” in the broadest sense - including for speculative purposes.

Germans favor investments in gold

Although Germany is currently “only” fourth in the ranking of the world's largest economies, the German Bundesbank - to the USA - with 3,362.4 tons second largest gold reserve in the world (Source: Statista).

According to a study carried out by the Research Center of Steinbeis University Berlin on behalf of ReiseBank in 2019, the German Private households however more than double the amount of gold: over 8,900 tons of gold in the form of bars, coins and jewelry.

A total of 2,000 people over the age of 18 were surveyed. Holdings of physical gold, gold jewelry and gold-related securities were included. Extrapolated to the German population as a whole, 38% of all Germans own physical gold. The ownership of gold bars and coins has increased by 23% since 2010.

The desire to own physical gold is evidently linked to a deep-seated need for security in Germany. This is probably not least due to the fact that our parents, grandparents and / or great-grandparents experienced two world wars, two currency reforms, famines and the loss of property and property as a direct consequence of war or as part of state expropriation.

Physical gold - coins or bars?

Bars, the weight of which is usually given in grams, are available in sizes from 1 to 12,500 grams. Coins are available (apart from special editions) between 1/10 of an ounce and an ounce (1 ounce = 31.1 grams). The prices depend on the current gold price and the size of the coin. Since bars are less complex to manufacture than coins, their price is usually a little cheaper.

The premium is higher for coins and depends on how small the unit is. The difference (spread) between the buying and selling price for coins is between 3.2% (1 ounce) and 11% (1/10 ounce), depending on the unit. The mark-ups for bars are between 1.8% (1000 grams) and 3.2% (50 grams).

You can buy physical gold in both Coins as well as in Ingots acquire. It is important to one Gold content of at least 895 (for bars) or 900 (for coins) thousandths.

Is gold suitable for building up wealth or is it just for crisis prevention?

Compared to other forms of investment, physical gold has that disadvantagethat there is no interest or dividends. From this it follows that physical gold is generally not suitable as an object of speculation, since the gold price has to rise very sharply in order to actually realize profits.

Since the gold price usually moves in the opposite direction to the share price, it can lead to Limitation of fluctuations It makes sense to add physical gold to the portfolio. The range of recommendations ranges from 5% to 25%.

Physical gold as Inflation protection or even as Crisis currency Owning can make sense to some extent. Gold as a crisis currency should be as small as possible so that it can be used as a means of payment if necessary. Coins are particularly suitable for this. It is generally recommended, however, not more than 10% of assets to invest in physical gold.

Over the past five years, the price of an ounce of gold has fluctuated between € 1,016.28 and € 1,725.45. Thus, a 1/10 ounce was never worth less than € 101.63 and never more than € 172.55 during this period.

When buying gold coins, you should make sure that there is a sufficiently large secondary market for them to be able to sell the coins at short notice if necessary. These coins are Krugerrand, Maple Leaf, Britannia, Nugget (Kangaroo), American Eagle, China Panda, Buffalo, Centenario Mexico and Vienna Philharmonic.

Meanwhile there are also so-called. Bar. These consist of a total of 20 1-gram gold bars that are connected to one another using predetermined breaking points. The 1 gram pieces are therefore easy to separate and can be used as a means of payment if necessary.

The price for one gram of gold is currently between € 45 and € 50 (as of April 2021). In general, when buying gold bars, you should make sure that they have the seal bear the London Bullion Market Association (LBMA).

Where and how can you buy gold?

You can find the best price with the help of corresponding comparison portals on the Internet. Serious providers are, for example, gold.de and goldpreis.de or Pro Aurum and Degussa. Also Online banks now offer physical gold for sale that can be held in the depot or delivered.

For example, the Consorsbank offers certain bars and coins in cooperation with Pro Aurum. The physical storage takes place at Pro Aurum, the equivalent to the current gold price can be seen in the depot. There are no costs for this.

Gold jewelry as an investment?

Due to its individual, taste and fashion-dependent character, gold jewelry is not particularly suitable for investing money. The resale value is usually below the former purchase price.

Exceptions can sometimes be found in the luxury segment. Here, however, it is the brand and not the gold itself that is decisive for the performance. In most cases, gold jewelry is melted down after the sale and only the current material value is paid for.

What's the best way to store physical gold?

If you own relatively small units, you can at home in the safe store or hide. Before doing this, however, you should clarify with your household contents insurance up to what amount and under what storage conditions you are insured against the loss of the gold. The requirements are usually quite strict. For evidence, keep certificates and take photos of your gold holdings. If you consider your gold as a crisis currency for an emergency, you will have it to hand immediately.

Alternatively, you can turn your gold holdings into one Safe deposit box store and pay annual fees for this. Safe deposit boxes are now difficult to come by in large cities and cost between € 70 and € 100 per year. Here, too, the insurance is limited to a certain amount. Alternatively, you can buy the gold in a (mostly expensive) Precious metal depot, if necessary also store abroad (for example in Switzerland).

Ultimately, you must weigh up the costs, the risk of loss and the ability to have quick access to your gold holdings yourself before deciding on a storage location.

Gold mining stocks, gold stock funds, and gold ETFs

Gold mining stocks are objects of speculation and cannot serve as an inflation-proof investment. Their price is far less dependent on the price of gold than on the business performance of the mine operator and the stock market in general. The operating companies usually protect themselves against sharp changes in the gold price. If necessary, delivery rates are adapted to developments in the market and cannot be realistically assessed or forecast by potential investors.

Same goes for Gold fundwho invest in corresponding stocks. As is generally the case with equity funds, investors can benefit from the broader risk diversification and better market knowledge of institutional fund managers, but they also have to pay front-end loads and ongoing management costs. In the event of the fund company's insolvency, the investor is protected insofar as the shares represent special assets and therefore do not belong to the bankruptcy estate.

Gold ETFs are gold funds traded on the stock exchange that are secured with physical gold. However, they are not permitted in Germany because they violate the rules of the Capital Investment Code (KAGB) of July 22, 2013. According to this, the fund company may not only invest in one position (gold), but must spread its investment over several positions.

Gold Certificates and ETCs

Gold certificates are derivatives that are used to map the development of the gold price. These can be warrants, CFDs (Contracts For Difference), mini futures or knockout certificates (leverage products). These are purely speculative products - there is no entitlement to receive physical gold. That is why we also speak of “paper gold”.

This also includes securities that are called ETFs, but instead of investing in gold in less risky bonds and blue chip stocks. For this reason, they are also approved in Germany, such as ETF Securities Gold (WKN ATRX996) or Deutsche Börse Commodities (WKN A059GB0). They depict the price development in gold “synthetically”.

ETCs

Securitize a claim to physical gold ETCs (Exchange Traded Commodities). Legally, these are bearer bonds. ETCs may or may not be backed by physical gold.

The risk of the investor exists in addition to the already existing risk of a negative development of the gold price (which, however, is offset by the chance of a rise in the gold price) in the creditworthiness of the issuer of the ETCs. This can lead to a total loss of the invested capital - for example in a severe financial crisis.

Various ETCs can be traded in Germany, for example XETRA Gold (the issuer is a subsidiary of Deutsche Börse), EUWAX Gold (the issuer is a subsidiary of Börse Stuttgart) or Deutsche Bank Physical Gold ETC. They are all backed with physical gold. The investor can have the gold delivered at any time, although delivery costs are incurred.

The advantage Such a financial investment is that you do not have to store the gold at home, in a safe deposit box or in an expensive precious metal depot and can also use the ETC as an object of speculation until the physical gold is possibly delivered.

Important is that the potential investor has a cheap securities account and his Custodian is also ready to handle the delivery. A Deutsche Bank customer recently ran into problems when he wanted to have his XETRA Gold delivered and his branch did not want to carry out the order.

Taxes on gold investments

In contrast to silver (considered an industrial metal) is the trade in physical gold VAT exempt. Profits from the sale of physical gold are not subject to income tax if the gold has been held for more than a year and meets certain criteria. On the one hand, there is the gold content of the coins or bars (see above). In addition, coins must be minted after 1800 that are legal tender in their country of origin or have been used once. The coins mentioned at the beginning meet these criteria.

For a sale within the Holding period of one year, the capital gains count as income from speculative transactions (Section 23 EStG), for which an exemption limit of € 600 applies (Section 23 (3) sentence 5 EStG).

Profits from the sale of securities that certify the right to the delivery of physical gold (such as XETRA Gold, WKN A0S9GB) are also not subject to the withholding tax. So gold is at least interesting from a tax point of view.

Conclusion on the subject of gold as an investment

If you are looking at gold as a crisis currency and protection against inflation, you should go for physical gold decide in small units.

As an alternative or in addition, you can choose to back it with physical gold, provided you have a corresponding level of trust in the issuer ETCs acquire. These also offer you the opportunity to reallocate your securities account regularly and at relatively low cost.

Gold mining stocks and corresponding equity funds are under this aspect due to the difficult to predict fluctuations in the equity markets not recommendable.

Historical gold price development

Studies of the gold price trend over a period of 41 years have shown that gold is overall less return as investments on the world stock index. From 1975 to 2016 the world share index generated an average return of 8.8% p.a., while the return for gold averaged 4% p.a. The fluctuation range was almost the same for both at 15.4% (world share index) and 16.1% (gold).

In times of crisis such as the financial crisis from October 2007 to March 2008, however, gold has Far better off (+ 33.8% compared to -46.1% for the world share index).

In 2016 there were a number of experts who expected the gold price to rise significantly to as much as $ 2,300 per free ounce by mid-2018 due to growing political tensions and rising inflation expectations, as well as the ongoing low interest rates. In the course of the year, however, the maximum value per troy ounce was just $ 1,358.50 and that was back in January. The value continued to decline until mid-2018 and was thus far below the forecasts from 2016. Forecasts of this type should therefore always be treated with caution.

Depending on your personal risk preference and how you assess future economic development on the world markets, you should consider whether, how much and in what form you should add gold to your portfolio. The prevailing opinion of the experts recommends a limit of 10% of the assets.

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