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How to invest in gold in South Africa
Compare gold dealers, gold stocks and online brokers to get the best deal on gold.
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But if you want to buy gold bullion or invest in gold through the stock market, how do you go about it? To find out, let’s take a closer look at how and where to buy gold in South Africa.
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Choosing a type of gold asset to buy
When most people hear the term gold bullion, it immediately conjures up images of bank vaults stacked to the ceiling with chunky gold bars. In reality, gold bullion refers to gold that is at least 99.5% pure and has been transformed into bars or ingots or minted into coins. Bullion is the form in which gold is traded on commodities markets around the world.
If you want to gain exposure to gold, there are a few ways to go about it. You can physically buy and store gold, you can invest in gold prices or companies via the stock market, or trade gold on the financial markets as contracts for difference (CFDs).
Investing in gold on the stock market
It’s possible to invest in gold through the stock market by profiting from gold prices rather than physically owning gold. Stock market investors can buy shares in companies that have gold exposure, such as gold miners, or they can buy units in a gold-themed exchange traded fund (ETF).
With this approach, you don’t actually buy any gold – rather you’re investing in the performance of the gold industry or the mining company. If you want to invest in gold via the stock market, you need a full-service broker or you can do so using an online trading platform.
This approach allows you to invest in gold without having to go through the hassle of buying, storing and insuring it. However, because you don’t actually own any gold, it exposes you to all the usual risks that the stock market carries, such as market volatility, company bankruptcy and the possibility of losing your investment.
When you buy units in a gold-themed ETF, you’re tracking the price movements of the commodity itself or stocks in multiple companies with gold exposure. Gold-themed ETFs listed on the South African Stock Exchange include:
- Absa NewGold ETF (JSE: GLD)
- AfricaGold ETF (JSE: ETFGLD)
If you want to buy stocks in companies with gold exposure, there are dozens to choose from on the Johannesburg Stock Exchange.
Invest in gold via CFDs
An alternative to buying gold stocks or units in an ETF is to speculate on price movements through CFD investing in the futures market. CFD investors seek to profit from bond price movements – whether up or down. That means that even if gold prices are falling, CFD investors can still make a profit. However, because CFDs can be highly risky and are complex derivative products, CFDs are better suited to advanced traders.
Investing in physical gold
This is the traditional approach and involves buying gold as a physical asset and owning it yourself. It allows you to get your hands on a tangible asset and avoid the counterparty risks associated with exchange-traded funds.
If you decide to buy physical gold, you’ll then need to consider what form you’d like to acquire. You can buy gold bullion in bars or in coins. Bars are larger and therefore more expensive, but they are an effective option if you’re looking to make a sizeable investment. Gold coins are smaller and less valuable, so they can be a more convenient option when you need to liquidate some of your investment.
Gold bars
Gold bars generally range in size from 1/10oz (ounces) to 1kg, but there are bars of up to 500oz available. However, remember that precious metals use troy ounces and that one troy ounce equals 31.1 grams.
There are two types of gold bars: cast bars and minted bars. Cast bars are produced by pouring molten gold into an ingot mould, while minted gold bars are manufactured via a minting or stamping process. Cast bars are cheaper to produce, but minted bars look better and are generally easier to sell.
Gold coins
Mints around the world also produce gold bullion coins. Typically smaller than bars and ingots, they’re generally considered to be a more convenient option for many investors. Not only are they cheaper to buy, but they also make it easier to liquidate a small portion of your investment when you need cash. Coins contain between 1/10oz and 1oz of pure gold.
These coins also have a nominal monetary value and can be accepted as legal tender in the country where they’re made – examples include the Kruger Rand, the American Gold Eagle, the Canadian Maple Leaf and the UK’s Gold Sovereign.
Deciding where to buy gold
There are several options to consider when choosing where to buy gold, so make sure to consider the following factors before deciding where to buy:
- Location. There are several gold dealers around South Africa, so the location of those dealers will influence your decision if you plan on buying gold in person.
- Online options. There are also many online dealers that allow you to conveniently buy gold bullion over the Internet. As well as specialist dealers, you can also buy gold through marketplaces such as eBay and even arrange purchases through precious metal forums. However, as is always the case when spending money online, you’ll need to make sure you know who you’re dealing with – do some research to find out whether the seller is reputable and trustworthy.
- How the gold was produced. You’ll also need to find out where the dealer gets their gold from. Is it refined and produced by an established and recognised manufacturer?
- Premiums and commissions. Read the fine print to find out what fees the dealer charges. Expect to pay a commission to the dealer, which is usually folded into the purchase price, as well as an assay fee to check the purity of the gold and to verify its authenticity, but shop around for the best value.
- Compare price to South African gold price. Gold prices are commonly quoted in US dollars, so make sure you compare the price offered by a dealer with the current price of gold in South African rand.
- Delivery. Find out how and when the gold will be transported to you or to its place of storage. Is it insured if anything goes wrong during the delivery process?
Storing your gold
Once you’ve purchased your gold, you’ll also need to find a safe place to store it. There are several options to consider, including the following:
- Bullion dealers. Many gold dealers will also offer a storage service where you can keep your gold bars or coins for a fee, so ask about the storage options available when you make your purchase.
- Safety deposit boxes. You can rent a safety deposit box at a bank to securely store your gold bullion.
- Secure vault storage. For high-level security, you may want to research vault storage companies near you and the storage options they offer.
- At home. You can also choose to store your gold at home. This obviously may not be as secure as some other options, so you may want to get a home safe installed. You’ll also need to update your home and contents insurance to make sure your precious metal is covered by your policy.
Things to consider before buying gold
If you’re searching for ways to protect your wealth or diversify your investment portfolio, gold may be a practical solution. However, please be aware that just like any other type of investment, buying gold comes with certain risks.
Do your research to make sure you understand the risks involved in buying gold, including the costs of storage and security as well as the fact that the returns may not match those provided by other investments. This will help you make an informed decision about whether buying gold is the right choice for you.
Thinking of investing in physical gold? Make sure you consider the pros and cons first:
In a nutshell
Pros
- Protect your wealth. Gold has long been seen as a reliable store of value that is largely unaffected by the factors that influence other investments. For example, when share prices plummet, the price of gold usually rises as investors look for somewhere “safe” to park their money.
- Diversify your portfolio. Gold’s “safe haven” status also makes it well worth considering if you’re looking to diversify your investment portfolio and protect your overall financial position during periods of market downturn.
- Easy to buy. There are many dealers who specialise in buying and selling gold, so getting your hands on this precious metal may be easier than you think.
- It’s a tangible asset. If global financial systems were to somehow collapse, such as what happened during the Great Depression, owning gold as a physical asset offers financial protection. Gold also can’t be destroyed by fire or water damage and won’t corrode over time.
- Liquid. Gold is also easy to convert to cash whenever you need to do so.
Cons
- Long-term returns may be lower. Gold is commonly seen as a steady investment, so it may not offer the same potential for big returns as other investments.
- There are fees to consider. You’ll need to factor additional costs such as dealer fees, delivery, storage, security and insurance into your calculations.
- Not as convenient as ETFs. ETFs offer a simple and cost-effective way to gain exposure to gold and may be a more convenient option than buying physical gold for many people.
- No ongoing income. Unlike owning property or shares, which can both provide an ongoing source of income in the form of rent and dividends respectively, gold doesn’t provide regular income.
Frequently asked questions
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.
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