Ways to invest in gold

Gold serves primarily as asset insurance and for that purpose you buy physical gold, in your own possession. There are derivative products for sale through the stock market that are often cheaper than physical gold but have very different advantages and disadvantages and, above all, a much higher risk profile. The various options are detailed below.

The options when investing in gold

There are several ways to invest in gold. Gold counterparts give as their main argument for staying away from gold that gold does not pay interest and dividends. However, it depends entirely on what way you invest in gold. Purchased in the right way, gold is actually extremely suitable as purchasing power protection. And that gold does not pay interest or dividends is also logical because there is no counterparty risk, provided you buy the right form of gold.

Gold bars

Gold bars are the most common and cheapest option when it comes to buying physical gold. Gold bars of 400 troy ounces or 12.5kg are the norm worldwide and are sold at a very low premium to the gold price.

However, this is not easily accessible or practical for private investors, and for this reason gold bars of 1 kilogram or a lower weight are often chosen. Important to consider when choosing your size gold bar: the lower the weight, the higher the cost of investing in gold. Production costs are then higher as well as the trader's profit margin. However, larger denominations of gold bars offer less flexibility.

Advantages

• Lowest price to buy physical gold
• Sourced from recognized producers.

Disadvantages

• Less liquid than smaller bars or coins
• Practical concerns: risk of theft
• Less suitable for smaller transactions

When investing in gold bars, it is important to choose an LBMA accredited producer. Central to the LBMA's quality assurance work is the maintenance and publication of the Good Delivery List for gold and silver. This list is universally recognized and serves as a benchmark for the quality of gold and silver bars. In fact, an applicant must meet the strict criteria. Bars from LBMA accredited producers that are on the Good Delivery List are tradable worldwide without further analysis.

Gold coins

Private investors buying physical gold often choose gold investment coins. There are several coin types worldwide including the Maple Leaf and the Krugerrand and all of these coins are minted in 1 troy ounce of pure gold. The value of these coins is currently around EUR 1,900, - which makes the coins accessible to many private investors and therefore liquid to sell in the future. The cost when purchasing gold troy ounce coins is generally 4 to 5%, depending on the coin type and the number of coins purchased. Other, smaller, coins tend to be more expensive. Lower-denomination gold coins tend to be less internationally tradable.

Advantages

• Accessible, lower piece price
• Potentially usable as money

Disadvantages

• When buying, you pay a premium above the gold price
• Many different types of coins that are not always well known
• Relatively high spread (difference between buying and selling)

When investing in gold troy ounce coins, it is important to choose a globally recognized product. At The Silver Mountain, we only buy and sell globally recognized investment coins.

Allocated gold

There are several banks and other parties where one can purchase allocated gold. Allocated gold means that the offering party has a gold storage facility where customers can make an investment in gold and co-own the stored amount of gold. So if someone purchases gold for EUR 100, there would be a few grams of gold stored in the vault in the name of this customer. However, there are often 400 troy ounce gold bars in this provider's vault, i.e. gold bars weighing 12.5kg. The weight of these gold bars is then divided among several investors and each investor is thus co-owner of this gold bar. It is not possible to get physical delivery and the security of physical gold is not present with allocated gold.

Advantages

• Buy gold cheaply without worrying about transport and storage.

Disadvantages

• Counterparty risk
• Transaction costs, storage costs, insurance costs and handling costs
• With individual bars: costs for reserving and naming an individual bar
• With physical delivery: costs for production and transport
  Physical purchase and storage location

Physical purchase and storage location

You can also choose to buy physical gold and store it elsewhere. For example, The Silver Mountain works with Edelmetaal Beheer Nederland. You can choose to purchase from The Silver Mountain and store it directly at Edelmetaal Beheer Nederland. Here your gold is stored reliably, economically, safely and allocated. You can also choose to rent a vault elsewhere and store your gold here.

Advantages

• No worries about transport and storage
• Buy and sell directly through EBN
• Can be physically delivered at any time without additional costs
• Everything is your personal property - even in case of bankruptcy

Disadvantages

• Storage costs
• Not readily available

Unallocated gold

In 90% of the banks that offer an investment product where gold can be invested in, there is unallocated gold. This means that no actual position of physical gold is held and thus there is no underlying value. The value of these products does follow the gold price. In the Netherlands, until a few years ago, there was the option of investing in gold through the ABN AMRO (formerly through the Hollandsche Bank Unie). In the days of the HBU, the gold was physically stored in its vaults in Rotterdam.

However after the HBU was taken over, the Terms and Conditions of this product were also changed and it was no longer possible to physically hold the investments in precious metals. The terms and conditions included that one would always try to hold at least 70% of all investments in a precious metal at the UBS, but this was not guaranteed. Investing in gold in this way does not provide the security that an investment in physically owned gold provides.

Advantages

• Buying gold cheaply

Disadvantages

• No physical gold as collateral
• Counterparty risk

ETFs

There are now several types of ETFs (Exchange Traded Funds) available that track the price of gold. These financial products are designed to allow investors to easily buy and sell gold. It is aimed more at speculators than investors or investors looking to secure their wealth. However, some ETFs do hold physical gold as collateral, which is a big difference from derivative products that track gold prices but have no physical coverage.

ETFs are relatively inexpensive and offer opportunities to invest in gold on various exchanges around the world. The spread (the difference between buying and selling) is very low because no fees for physical deliveries apply.

The GLD (SPDR Gold Shares ETF) is the most popular ETF but there are a growing number of other ETFs that all have advantages and disadvantages. In some cases, you invest in gold with leverage, or you can actually invest in gold mining companies instead of physical gold. With the Van Eck Brand Gold Trust ETF (OUNZ), converting an ETF position to physical gold is the easiest to arrange.

Advantages

• Cheap form of buying gold
• Tradable 24/7 at low spread

Disadvantages

• Not always physical gold available as cover
• Does not always follow gold price 1 on 1 - possible leverage

Gold mining stocks

Gold mining stocks are popular among speculators who want to gain exposure to gold and be able to outperform the gold market. The prices of gold mining shares are leveraged against the gold price, but are also highly volatile relative to the gold price.

More than 300 gold mines are listed on various exchanges where shares are publicly tradable. More than $220 billion is turned over annually in these gold mining companies. There are gold mining shares with a market capitalization of more than $10 billion.

Buying gold mining shares is often done as a complement to buying physical gold. However, mine shares are a business in their own right, and the value of a gold mine is not based solely on the price of gold. Companies may merge, break up or go bankrupt due to poor management. It can also happen that share prices explode when a new vein of gold is found, and there are even companies that just buy up patches of land where engineers investigate to see if there is gold in the ground without actually mining it.

The price value of gold mines is determined in part by ongoing projects, reserves, the estimated amount of undrilled gold in the ground and incoming royalties. Because the cost of gold mines is independent of the level of the gold price, it is also common for gold not yet mined to be hedged. That is, the gold mine sells the gold and delivers it in the future at an already established gold price. In this way, the gold mine is sure that gold can be mined profitably. However, it will not benefit from a rise in the gold price.

As with other stock prices, the profitability, solvency, strength of the balance sheet and the quality of the management also play a major role in determining the height of the price.

Advantages

• Chance of high returns
• Possible out perform gold price

Disadvantages

• Uncertainty about profitability
• Highly volatile, high risk

The Silver Mountain was founded in 2008 by Rolf van Zanten. When we started, we had a clear goal in mind: to make buying physical silver and gold accessible, safe and transparent.

We are proud to say that we have grown into the Netherlands' largest and most reliable bullion dealer online. In the bullion market, we offer a full-service service for the purchase, sale and storage of your precious metals. This is also reflected in our reviews.