Buying gold can add stability and diversification to an investment portfolio, especially in the current economic climate of high inflation and stock market volatility.
Here’s what you need to know about buying gold in Australia.
Remember that investing in a commodity like gold or investing in a stock market fund is inherently risky and your capital will be at risk as a result. You may not get a partial or even full refund of your money.
How is gold valued?
Gold is valued according to its purity and weight. This is then multiplied by the gold spot price to calculate the value.
ABC Bullion updates its live gold price feed in real-time, updating every five minutes. The feed runs 24 hours a day and allows buyers and sellers to monitor the market.
1. How is the purity of gold measured?
Not all that glitters is gold, manufacturers are adding other metals and alloys.
Karat measures the percentage of gold in relation to other metals. The karat number is often stamped on the gold and ranges from zero to 24.
The higher the karat, the higher the proportion of gold compared to other metals such as copper, silver or palladium. Pure or effectively 100% gold is 24k.
Here is how purity varies by carat:
2. How is the weight of gold measured?
Although Australia uses the metric system, the weight of gold bars is still measured in ounces. But to add another layer of complexity, this ounce measurement is not an imperial ounce. Instead, it is a “troy” ounce.
An imperial ounce weighs 28.35 grams, while a troy ounce weighs 31.1 grams – making a troy ounce almost 10% heavier.
Shae Russell, communications manager for ABC Bullion Group, says most bullion traders assume people know the difference between troy and imperial ounces, and so often only show prices “per ounce.”
Therefore, it is important to know the correct weights if you are interested in buying gold.
How to buy physical gold in Australia
You can buy physical gold in the form of bars, coins, or jewelry from mints, bullion dealers, and banks.
1. gold bar
Gold bars – often pictured stacked in bank vaults – can range in weight from one gram to over 10 kilograms. The bars are stamped with purity and weight.
ABC Refinery in Victoria has been involved in the refining and processing of precious metals since 1978 and is the exclusive producer of the ABC Bullion product, which is distributed through ABC Bullion.
ABC Bullion sells bullion and minted bars in sizes from 1 gram to 400 troy ounces, which is just over 11 kg.
2. gold coins
The Royal Australian Mint is Australia’s sole producer of circulation coins and has produced over 15 billion coins since opening in 1965.
The three types of coins produced at the Royal Australian Mint are ordinary circulation coins (used for everyday cash transactions), collector coins (which have legal tender but are used as a gift or collection) and bullion coins.
Bullion coins, which are produced in large quantities, are a cheap and easy way to enter the gold markets, the Royal Australian Mint explains on its website.
Gold coins typically have a lower gold content than bars, making them a cheaper investment option. At the time of writing, the cheapest gold coin available in the Royal Australian Mint shop is marketed at $360, while the most expensive is priced at $3750.
Other Australian mints also produce and sell uncirculated coins in various metals, with pure gold coins available from ABC Bullion, The Perth Mint, The Melbourne Mint and others.
Because there is a strong international market for historical and unique coins as collectibles, these coins are typically sold at a premium compared to their gold grade.
One of the last gold coins minted in the US, the 1933 “Double Eagle” fetched $18.9 million at auction last year – the equivalent of more than AUD 29 million. It contains 0.9675 troy ounces of gold.
3. Gold Jewellery
Jewelry, especially antique pieces, is another way to buy gold. However, as with gold coins, you typically pay a premium in proportion to the content of the gold.
This mark-up is generally in excess of 20% and can often be much higher, depending on the manufacturer, to cover design labor costs, manufacturing costs and retail margin.
You should be able to calculate this premium if you know the weight and karat and the current spot price of gold. Because of this, some retailers are reluctant to advertise the weight of jewelry.
For example, an 18k gold wedding ring from a luxury designer brand costs $2600. If the current value of the gold content is $398, that means you are paying a premium of more than 6x for the retailer’s craftsmanship and profit.
For comparison, you could buy an 18k gold wedding ring from a high street retailer for $580, which is about a two-thirds premium to the underlying gold value of $398.
Also, jewelry depreciates in value when purchased, making it a less stable store of value. If you are considering investing in jewelry, keep all sales records and proof of value as this will facilitate resale in the future.
Factors to consider when buying physical gold
If you decide to buy physical gold, there are a few things to keep in mind:
- storage: Physical gold requires safekeeping, preferably away from your home. It should be stored away from moisture, corrosives and metals such as silver which can tarnish it. Various mints across Australia offer storage, as do specialist vaulting companies; However, additional fees apply for third-party storage.
- Insurance: If you decide to store your gold at home, you should make sure your home insurance covers it. If you are using a third-party storage facility, you should also check that it has adequate insurance.
- Reliability: Regardless of what type of gold you’re looking to buy, it’s important to contact a reputable dealer such as the Royal Australian Mint or ABC Refinery. If you want to buy from an alternative source, make sure you do some research to see if the seller is reputable.
- Purity: The gold content of the bar, coin or piece of jewelery determines its value. A high karat (21 karat or more) is preferred as it contains a higher percentage of gold and is less likely to tarnish. However, the higher karat gold is less durable and requires more care not to scratch or damage it.
How to buy gold stocks
Buying gold in physical form can be difficult when it comes to ensuring its authenticity, storing it safely and reselling it. Investing indirectly can offer investors potential upside potential when gold prices rise, without the hassle of owning gold directly.
So what are the options for investing in gold? Here is a brief overview:
- Buying gold and commodity funds: Specialized commodities, mining and exchange traded funds (ETFs) can give you exposure to gold. These range from funds that invest in gold mining companies to ETFs that directly track the price of gold and other precious metals.
- Buy shares in gold mining companies: Gold mining companies have made record profits over the past year due to the rise in commodity prices. Mining companies include BHP Group, Rio Tinto and Newcrest Mining. They also offer potential income for shareholders through their traditionally high dividend payouts.
As with other assets, any gain or capital gains from investing in gold, whether direct or indirect, may be subject to Capital Gains Tax (CGT). You may have to pay capital gains tax if your investment-grade bar is worth more at the time of sale than it was when you bought it, ABC Bullion explains.
Is gold a good investment?
If you want to get rich with a modern gold rush, you’re probably in the wrong place.
Why? The answer lies in holding gold during periods of economic volatility. Some investors see gold as a safe haven asset during stock market crashes and as a means of wealth preservation during high inflation.
However, gold prices can also be very volatile, meaning that gold is not a safe investment. If you want some of that golden glow in your investment portfolio, aim for it to be just a small percentage of your total investments.
As with other investments, your investment in gold can go down as well as up and you may not get your money back. If you are unsure which option is best for your unique circumstances, you should seek financial advice.
Should You Invest in Gold?
Gold can offer investors a safe haven and a way to preserve their wealth in a high inflation environment. As with stocks, the price of gold is volatile but has appreciated in value over the past 30 years.
Depending on your preference and risk appetite, you can invest in physical gold, mining stocks, or gold-based funds and ETFs. However, it is important that any investment in gold is part of a diversified portfolio. And as always, make sure it’s the right choice for you.