Buying gold allows you to diversify your wealth . It is also an asset whose price will tend to rise in the event of an economic or financial crisis. You can buy gold in the form of coins or bars, but there is more convenience. It is indeed possible to buy “paper gold” with ETFs which will replicate the price of gold. In this guide wediscuss how to invest and buy gold in 2022.
Why invest in gold ?
Gold, safe haven and countercyclical
Unlike a stock market investment or a real estate investment , gold does not create wealth. Holding gold does not allow you to receive dividends or rents. So why invest in gold?
The main reason is that gold is a safe haven. For centuries, the precious metal has been used as currency. Moreover, even though the gold standard system ended in 1971, central banks around the world hold the largest gold reserves. The Banque de France has more than 2,400 tons of gold in its safes and the central banks of the euro zone hold, in all, more than 10,000 tons. It is a way to increase confidence in the currency.
And in times of crisis, when investor confidence erodes, it is this characteristic that is sought after: gold has always had value and always will. During bank panics , many savers have the reflex to empty their bank accounts to hold banknotes or buy “real and tangible” gold!
In the management of one’s assets, gold can therefore act as a shock absorber in times of crisis. When stocks fall, the price of gold tends to rise: gold is said to be a counter-cyclical asset. The chart below illustrates the inverse correlation between stocks and gold.
Although the inverse correlation between gold and stocks is not perfect, it is noticeable that gold has been on the rise during the bursting of the dotcom financial bubble , the subprime mortgage crisis and the Covid-19 crisis.
Invest in gold to hedge against inflation
Fiat currency can be created endlessly. We speak of monetary creation or more prosaically of “printing money”. But creating too much money depreciates its value. In other words, inflation is generated .
Conversely, gold is present on Earth in finite quantities. Its value cannot therefore be manipulated. The purchasing power of one gram of gold is stable unlike the purchasing power of one euro, which tends to decrease over time. This means that in the event of high inflation, the price of gold will tend to increase.
So you can use gold as a way to hedge against future inflation. That being said, in the event of moderate inflation, equities will protect you better, as the rise in prices is integrated into the rise in corporate profits. Historically, it is especially in times of hyperinflation , or at least very high inflation, that gold has played its protective role.
How to buy gold?
The first way to invest in gold is to buy gold in the form of bars or coins. You thus have a recognized exchange currency, outside the banking system, which can secure some of you. However, make sure you have a place to store your gold safe from theft!. On our side, we recommend that you go through the londongoldcentre.co.uk.
You must also distinguish between investment gold (whose purity must be greater than 90% and which is not subject to VAT) and commercial gold, which is found in jewelry or certain gold coins. .
Buy gold over the counter
You can buy gold at precious metals buying and selling counters. You will then pay a premium on the amount of gold purchased. The premium corresponds to the difference between the selling price and the quotation of gold. This is the trader’s compensation. The bounty depends on the merchant, the amount of gold you buy, the quality of the coin and its rarity:
- for a bar of 1 kg of gold, count less than 2% premium;
- for a 50 g ingot, count around 3% premium;
- and for a 20-franc Napoleon coin, around a 5% premium.