Ready to buy gold? Here’s what you need to know.
We have been graced with years of easy returns due to the low cost of finance, and bull markets in Equities and Property, the US Federal Reserve, either relaxed credit terms or added additional liquidity to buoy markets. When it comes to growing your wealth in uncertain times, being cautious and smart is key.
With the looming threat of another global financial and banking crisis, it’s no wonder investors are feeling uneasy. That’s where the glittering allure of precious metals, like gold, comes in. However, the prospect of buying precious metals can be daunting, especially for newcomers. Tony Coleman, Managing Director of New Zealand Gold Merchants (NZGM), is a seasoned expert in the precious metals industry. He shares his top tips* for anyone seeking to invest in this precious metal. Before we dive into his insights, let’s first explore why people invest in gold.
Why buy gold?
“The Beauty of owning gold is the risk we don’t take by owning it”, Tony Coleman.
The very first thought to have is ‘Why am I looking to buy gold?’ Do you want to de-risk from increasingly unpredictable markets? Or do you want to chase the price up? Having a clear idea of the ‘why’ will help clarify all the other questions that inevitably arise.
Buying gold is a much easier process than, say, buying shares in the stock market. Navigating the tumultuous landscape of the stock market requires a large amount of expertise, foresight, and more often than not: luck. Gold is also easier to trade, maintain and pass on to the next generation².
‘Gold generates no income’ is often touted as why many do not invest in it. Gold is not an investment, gold is stored wealth, it is the ultimate money, it has no leverage like fiat currencies, and it does not get inflated away. This is the beauty of it, though! It is a stable means of storing wealth. Unlike other asset classes, it can protect against overheated markets, inflationary pressures, and weakening currencies. Its unrivalled liquidity and stellar long-term performance make gold an ideal asset for securing your wealth.
“Gold is an exceptional store of value, it has no counterparty risk, it is extremely liquid and is a contrarian investment – it goes up when other investments go down, and that’s what you want in a portfolio,” Coleman explains. “You want to be rescued by a market that is going up when others are going down.“³
You only need to look at prices over the last four years to see these trends reflected. Pricing increased at the beginning of the pandemic and again as signs of a recession appeared.
It is during slower economic growth phases, which is what you see here, that gold – and to some extent silver – acts as the protection component of any portfolio.
“If the other components of the portfolio are not performing, it has been proved over and over again that gold will be – protecting the investor against losses,” explains Coleman¹.
But how do you buy gold? Tony Coleman outlines his tips* for investing in gold.
1. Purchase as soon as possible.
The earlier you start buying gold, the more you stand to gain financially. Ideally, you should aim to invest 20% of your total portfolio in gold to best hedge against financial uncertainties.
2. Learn how pricing is determined.
While buying gold is easier than other kinds of investments, do your research so you can make informed decisions. Familiarise yourself with basic terminology and study the market. Look at charts to observe the trends. Recognise which precious metals might attract GST, making them more expensive (gold and silver don’t)4. Understand what costs may be incurred when purchasing gold.
How is the price determined?
Firstly, there’s the spot price. This price is based on supply and demand around the world for 100 oz paper contracts for gold or 5000 oz paper contracts for silver. It is set in US dollars and quantified in Troy Ounces (oz).
The actual price you pay for gold will always be an amount above the spot ask price. To the spot price, margins are added to cover any costs associated with purchasing the product, such as importing and minting and manufacturing costs. Products that cost more to make or import will attract a higher margin. Which brings me to the next point.
3. Invest using a local brand for the best value.
For international brands, the same pricing principle applies. Internationally sourced gold has more costs associated with it (shipping/mining/customs fees), which are reflected in the price you pay. The sale price, however, is determined solely by the weight and purity of the product, regardless of where it comes from. New Zealand Gold Merchants (NZGM) offers both international and local gold brands. New Zealand Gold Merchants (NZGM) own brand, “New Zealand Pure”™, is sourced and refined locally, which allows them to pass on the best prices to you.
4. Time your buy.
It may seem counterintuitive but the best time to buy gold is when the market is calmer. Over years, Coleman has observed that people buy gold emotionally, and people react to unsettling news in unison. Economic turmoil usually drives up the price, such as when demand increased significantly due to the pandemic and lockdowns, or when Russia invaded Ukraine. This results in anxiety-ridden, hurried decisions from ‘fear of missing out (FOMO)’5 6.
“Gold buyers need to understand that such a high upward trend in price is likely to reverse as quickly as it went up. This is because the risk in gold is more perceived than real – you just have to look at gold’s performance over a great many years to see that,” he explains.7
“The counterpoint to this is when real structural damage occurs in the monetary system, such events underpin the higher metals prices and a paradigm shift in money management occurs”.
5. Think small, frequent amounts in the long term.
It’s smart to purchase precious metals in small quantities and more frequently, as compared to paying a one-off, huge lump sum to invest in property. Buying regularly over a longer period means you can smooth out the highs and lows of price and take advantage of the ‘dollar cost average’8 as you never know what the future holds.
6. Use a trusted source.
Purchase gold and silver from reputable sources – such as New Zealand Gold Merchants who have been in the gold bullion trading business for 50 years – to make sure you get what you paid for. Quality is only as good as the supply chain, so deal with experts that guarantee the products they sell.
So there you have it, six gold-buying tips from a premier gold merchant and refiner. Above all else, Tony wants people to know that adding bullion to your portfolio isn’t just for the wealthy or financially savvy. It’s an option that anyone can – and should – consider.
Disclaimer: Tony Coleman is not a financial advisor, and none of his tips should be considered ‘financial advice’. The information he provides here is based on his extensive experience in buying and selling gold. These tips are intended to aid you in making an informed decision for yourself.