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Gold As An Investment In Times Of Corona

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The corona crisis has massive effects on the global stock markets. But what does the spread of Corona mean for investments in gold? What the corona pandemic means for your investment in gold and what should be considered.

The essentials in brief:

  • The corona crisis sets new records for the gold price. Since the beginning of 2020, it has temporarily increased by around a quarter.
  • However, the price of gold has fluctuated strongly over the past 20 years. Therefore, gold is anything but a safe investment.
  • We therefore advise against investing more than 10 percent of your assets in gold.
  • In general, gold is not unsuitable as an investment. In an investment mix – for example with interest-bearing securities and equity funds – you can reduce the overall risk of suffering large losses when investing.

GOLD: SAFE INVESTMENT OR RISKY GAMBLE?

Despite these risks, gold is generally not unsuitable as an investment. Adding gold to an investment mix – for example, consisting of interest-bearing securities and equity funds – can reduce the overall risk of suffering large losses when investing.

For example, share prices worldwide collapsed during the financial crisis, while the price of gold rose rapidly. And with the beginning of the Corona crisis, the stocks temporarily fell by 30 percent in value, while gold even rose by around 10 percent. However, gold pays neither interest nor dividends and its long-term performance over decades after deducting the inflation rate was only higher in a few periods than with  other financial investments.

We therefore advise against investing significantly more than 10 percent ofyour assets in gold.  Decide to invest part of your long-term assets in gold or if you want to give away gold as a stable investment for a certain occasion, you have various options available, which we briefly describe below.

GOLD COINS

Gold coins are usually made of fine gold (999 gold). They are often published annually by different countries with different motifs. With some gold coins, the number of copies sold is very small, often the coins are then significantly more expensive than the gold content would suggest. One then speaks of collector coins . Most newly issued coins, however, are issued at a price close to the value of the gold contained in the coins. The price changes every trading day. Banks and precious metal dealers sell gold coins, with some banks only selling to their own customers. The sales price to the customer is greater than the purchase price from the customer – after all, the providers want to earn money from the trade. The difference in an ounce is usually around 5 percent. The lighter the coin, the greater the differences. With a quarter ounce, the difference is often more than 10 percent. If you would like to get as much gold for your money as possible, it is better to buy a few larger coins instead of many smaller ones.

GOLD JEWELLERY

Gold jewelry is usually not offered in the form of fine gold, but as an alloy, i.e. a mixture of gold with other metals. The most common alloy is 585 gold, which corresponds to a gold content of 58.5 percent. The price of gold jewelry therefore not only includes the value of the precious metal, but also the costs of processing and of course the profit margin of the dealer or jeweler. The gold price is published in newspapers, it then only has to be converted into currencies using the exchange rate that is also published. The price is also published on the websites of stock exchanges or direct banks. Because of the sometimes high surcharge on the actual gold value, jewelry is less suitable for investment than gold coins. However, jewelry can also come up with an intangible value: a beautifully crafted pendant is probably better suited as a gift than a coin.

GOLD FUND

Gold funds do not (as one would think) invest the funds of investors exclusively in gold. This is related to legal regulations that apply to open mutual funds. Investment funds should actually spread the risks for their investors, so they are not allowed to invest all money in a single investment. Instead, other financial investments (e.g. bonds or shares) are acquired with the investors’ funds and certain financial transactions (swaps) are concluded at the same time, which are intended to ensure that the unit value fluctuates exactly with the gold price. 

The disadvantages of investing in gold funds are: Investors have to trust that the game with financial transactions will work permanently, because they do not receive the gold directly, but rather the promise of the provider to replicate the gold price. Even if this may have worked well in the past, it is uncertain whether this will also work in the event of turmoil in the financial markets. The management of the fund charges a fee for administration (up to 1 percent annually). When buying, investors have to pay a sales charge (up to 3 percent), plus annual fees for custody account management.

Gold funds should not be confused with gold equity funds. The latter do not buy gold, but shares in companies that are involved in the production of gold. Their prices can develop completely differently than the price of gold and are therefore no substitute for an investment in physical gold.

GOLD SAVINGS PLANS

There are many dubious offers from gold savings plans. The prices are usually much higher with a savings plan because small amounts are always bought. Some providers charge a high commission for such a savings plan. You calculate that the customer will use the savings plan over the entire contract period and calculate the commission from this entire investment amount at the start of the contract. Investors lose a lot of money here, especially at the beginning. In addition, it is not always guaranteed that investors actually receive physical gold. There are offers in which the investor acquires the right to receive a repayment, the value of which depends on the gold price. 

But if the debtor (provider) cannot fulfill his obligation because he is broke, the investor will get nothing. So be more skeptical about entering into gold savings plans.

GOLD STOCKS, GOLD STOCK FUNDS, GOLD ETCS, GOLD CERTIFICATES These financial products are not a substitute for buying gold. These are completely different asset classes. The value of stocks does not move in the same way as the price of gold. And ETCs (exchange traded commodities)  and certificates are essentially bonds, often issued by banks. Thus there is still the additional issuer risk.

Hello, I have been working as an investment consultant and author for more than 20 years. I love what I do and I have enriched everyone around me. A lot of money is not important, the main thing is how you use the money.

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