Geopolitical tensions and fears of inflation are driving the price of gold higher. Many savers are turning to coins and bars – what to consider when making a purchase.
The demand for gold is rising due to uncertain geopolitical conditions.
The price of gold is reaching record highs. On Friday, the price for a fine ounce of the precious metal temporarily surpassed the $2400 mark for the first time. This year, it has increased by 15 percent.
Precious metal seen as a “safe haven” for savers
Gold has a millennia-old tradition as a means of payment and store of value, and is considered a “safe haven” for savers and investors in times of crisis and inflation. While the metal is less suitable for wealth accumulation, its long-term returns are moderate, with no interest or dividends, and the price of gold can fluctuate significantly. However, gold has repeatedly proven its effectiveness as a hedge against losses during crises.
Many financial advisors recommend that individual investors allocate a small portion of their wealth – about 3 to a maximum of 10 percent – to gold. They have a choice of various financial products such as funds, structured products, or physically backed Exchange-Traded Funds (ETFs). However, many savers prefer to have physical gold in their possession and opt to buy coins and bars.
The advantage is that they then own the precious metal directly without any investment products in between. However, savers should not be naive when making a purchase. There are several points to consider.
Get more gold for your money with larger units
Price ranges come into play: When buying precious metals, there are no “real bargains,” says Benjamin Summa, spokesperson for the precious metal dealer Pro Aurum. Those who want to acquire fine bars or coins must always pay more than the current “pure” material price. The rule of thumb is that with a higher bar value, you get more gold for your money.
At the precious metal dealer Degussa Goldhandel, on Friday, a gold bar weighing 1 gram cost 82.50 Swiss francs, a bar weighing 100 grams cost 7248.50 Swiss francs, and a 1-kilogram bar cost 71,682 Swiss francs. Both bars and coins have spreads between buying and selling prices at dealers. Therefore, one should be aware that after the purchase, they are initially at a loss. When it comes to coins, it is advisable to opt for widely circulated ones that can be easily sold again – such as Maple Leaf, Krugerrand, or Vienna Philharmonic.
At Degussa, private customers showed a strong demand for smaller units such as 50-gram or 100-gram gold bars, according to CEO Andreas Hablützel. Christian Brenner, managing director of the precious metal dealer Philoro Switzerland, states that customers often purchase ounce denominations like Vienna Philharmonic and Krugerrand when it comes to gold. “The Gold Vreneli is always a bestseller.” For gold bars, versions ranging from 100 grams to 1 kilogram are highly sought after.
However, there are also many customers who are now looking to profit from the price rally in gold and are selling, says Brenner. “The inflation of recent months has led many people to seek ways to obtain liquid funds.”
Buy only from reputable providers: When buying gold, it is crucial to pay attention to the credibility and reliability of the respective provider. “One should not be persuaded to buy gold by ‘flying traders’ at holiday resorts, highway rest areas, or in shady train station areas, and also steer clear of internet-based, untrustworthy fake shops,” says Summa.
Anonymity limits when buying gold: Some gold buyers prefer to purchase the precious metal with cash and remain anonymous. Banks always require identification when purchasing precious metals. “When buying through a precious metal dealer, precious metal goods up to 15,000 Swiss francs per person per year can be obtained anonymously, i.e., without providing personal data,” says Brenner. If the amount exceeds 15,000 Swiss francs, extended documentation requirements apply, including a copy of the ID. In Germany, this threshold is only 2000 euros, and in Austria, it is 10,000 euros.
Gold coins and bars exempt from value-added tax: Unlike silver, platinum, and palladium, gold coins and bars are exempt from value-added tax in Switzerland.
Look for the LBMA label: Buyers of gold bars should ensure that they bear the label of the London Bullion Market Association (LBMA). Otherwise, they are not tradable in Switzerland and other European countries. The label signifies that the precious metal was not mined under questionable circumstances and that certain social and environmental standards were met. “Additionally, the bar should be purchased directly from the name stated on the bar,” says Hablützel. This way, it can be ensured that the bar meets all security features and is not a counterfeit.
The demand for sustainable gold is limited among the surveyed precious metal dealers. “Our customers rarely mention the issue of recycling or so-called Green Gold – approximately one customer out of 2000 raises this issue,” says Summa. In general, buyers are focused on getting as much gold for the money offered, i.e., paying as little markup on the material value as possible.
Investors should consider storage costs: Gold buyers should consider how they want to store the precious metal. Precious metals worth up to 20,000 Swiss francs can be stored at home in a safe, according to Brenner. However, there is a risk of theft in case of a break-in. Therefore, one should consider insurance. Alternatively, safe deposit boxes at banks or private precious metal dealers are suitable. Another option is customs-free warehouses.