Savers are always on the lookout for a great opportunity to secure their capital and, as far as possible, make it grow. There are several ways to invest your money intelligently: bank savings via interest-bearing passbooks, managing a portfolio of assets on the stock market, taking out life insurance, investing in rental property or property assets. Even if you don’t always think about it at first, the purchase of precious metals, such as gold or silver, has always been considered a safe haven for your savings. Whether it’s physical gold or paper gold, buying gold as an investment is considered to be a perpetual bargain all over the world. Exaggerated truth or half a lie? Should you invest your money in gold? Why and how?
Throughout our comprehensive guide you will find all the answers to the questions you have about buying gold as a long-term savings solution.
How to invest in gold?
Gold – physical or paper – is a concrete alternative to other financial investments that may seem less concrete, at least palpable. Physical gold is considered, since the precious metal is a means of exchange, as a safe haven. A sort of shield against economic crisis and stock market crashes. An investment that does not weaken in the face of economic uncertainties. In contrast to others that are dependent on the banking system / financial markets: savings books, stock exchange securities accounts and life insurances are directly dependent on stock exchange prices to guarantee their returns. The same is true for real estate investment, whose prices are dependent on many economic parameters. We will come back to this later.
Gold is quoted twice daily in London by the London Bullion Market Association (LBMA). At 10.30 am and 5.30 pm (Paris time), the price per troy ounce is the unique reference, worldwide. This ounce weighs 31,1035g and is valued in US Dollars (USD). It is possible to buy physical gold and own it at home or to invest in paper gold which takes the form of bonds that act as title deeds for the corresponding quantity.
How else to invest in gold? It is possible to buy shares in gold mines, i.e. an industrial site that extracts the metal from a mine, via an ordinary securities account.
We recommend that you buy gold online as the costs are lower than through an approved intermediary but on a reference site as this precious metal is rare and requires the utmost reliability . You can also buy gold in Paris rather than in the provinces with an average price difference of around 10%.
How do I buy physical gold? Call on your banker who will allow you to sign a legally regulated purchase order for a certain quantity against a commission of between 1.5% and 2.5% of the transaction amount. Then you are delivered to your home.
How do I buy paper gold? It is essential to go through an online broker or a serious intermediary specialised in the field. If you go through a CFD broker who seems to be selling you the precious treasure, keep in mind that in most cases they only offer you the opportunity to speculate on the upward or downward trend of the price reproduced by the Market Maker. Bonds bought via a reference site are worth as much as a physical Napoleon or ingot.
Why invest in gold?
Placing silver in gold has many advantages in terms of investment security and taxation
Precious metals are considered to be a long-term investment with good reason. You don’t buy a few gold bars or ingots and then sell them a few months later. It is a form of precautionary saving that stands the test of time.
Thanks to the democratisation of online investments, gold is now accessible to all. Small budgets can also buy: either small physical volumes via their bank or place orders on the stock exchange very easily. Investing in physical and paper gold is as easy as buying a state-of-the-art digital camera or trendy furniture.
In which gold to invest?
Each form of metal has its own interesting advantages.
Paper gold protects against theft. Once it has been integrated into its asset portfolio, it is impossible to have the quantity of gold purchased stolen. The management is relatively light and more practical than physical gold. If you decide to resell your gold when a position is closed, you can do so at any time without any particular difficulty. The amount raised from the sale is automatically added to your investment capital, less any fees charged by the online broker.
Concerning physical gold :
- it is a means of payment accepted throughout the world, since the dawn of time
- it is a saving that you can have at home
- the purchase of physical gold is not subject to VAT
- since 2018 the holding of gold is no longer subject to wealth tax (ISF). It has been replaced by the IFI, i.e. the English wealth tax on real estate
- on resale, a 5% annual tax exemption is applied from the 3rd year on the 34% flat rate provided by law. After 22 years the exemption is complete or in case of no capital loss / capital gain
- it is easy to store, as long as it is protected in a safe at home
- his donation is easy and free. Ideal for the preservation of a part of the heritage for children
Either method is no better than the other. It all depends on your investment strategy, your ability to manage assets either passively with ingots or coins, or dynamically with a stock market investment. Physical gold presents certain possible material constraints in terms of storage and transport in case of large quantities owned. Paper gold remains dependent on stock market mechanisms and financial products that may impact its profitability
It is essential to bear in mind that investing in gold, whatever its form, is a safe investment over a long period of time. However, there are certain risks to be taken into account before investing part of one’s capital in the yellow metal.
The risks of investing in gold
Behind its image as a foolproof financial investment, it should not be forgotten that an investment in gold presents some significant risks that should not be overlooked before spending the slightest euro on a few grams of gold, a gold coin or a gold bullion ingot.
If precious metal was such a disaster-proof investment why do all financial specialists say :
- firstly, that one should diversify one’s stock portfolio
- secondly, that no more than 7% of its funds should be invested in gold
Risks related to physical gold
In our opinion the number one risk is to buy gold at the high price. Some statistical studies show that gold prices rise and fall unevenly. The downtrend is faster with 4-year cycles while the uptrend is slower with 6-year cycles. Even if in the long term gold reports always, a purchase at the peak of an upward cycle implies a long wait before a possible capital gain.
The gold price is strongly influenced by many external parameters:
- geopolitical incidents in areas where gold mining sites are located
- the guarantee of the price of the US dollar on which the reference price per troy ounce is based
- central bank purchases to support state economic systems
- stock market speculation
Physical gold in particular does not yield any return. Unlike a stock that potentially pays dividends or bonds, gold measures its value by its weight. In the event of a resale, it can benefit from a one-off capital gain when its price has risen.
As we have indicated on several occasions, the price of gold is valued in USD. There is therefore a major influence of the currency on the relative value of gold. This is called the exchange rate risk. If the US dollar rate is low, the price of the precious metal is automatically also low. It is therefore preferable to make a gold investment when the US currency is low in order to benefit from favourable conditions. And to resell it when it is at its highest. On a bullish cycle peak, nice profits are on the horizon.
The risks associated with paper gold
Paper gold has a number of risks in common with physical gold. Mainly those linked to the US dollar and its quotation in London.
More specifically, the risks associated with paper gold arise from the method of investment. Placing an order on the stock market naturally involves risks. For example, if you buy gold through an intermediary such as an online bank, you may be able to carry out the transaction through a mutual fund (OPC), which may be composed of certificates, trackers or FCP (fonds communs de placement / SICAV). By going through a reliable broker, a financial counterpart is to be expected.
2 schools compete for the game. The one that favours investing in gold through trackers and FTEs because they follow the real price of the metal, which makes it possible to be more reactive in case of sudden incidents or urgent cash needs. The other bases its approach on the purchase of certificates which in turn are based on forward prices. A UCI is a forward investment, i.e. it has a life span with a forecast objective that serves as a reference regardless of the actual price.
Once again we are talking about investment strategy and financial objectives. Gold should always be considered as a safe haven with limited importance in one’s savings. Favouring trackers guarantees potential significant capital gains in the event of an unexpected rise. Favouring certificates is a long term and serene vision that takes its full meaning in a consolidated diversification of one’s financial assets.
Investing in gold or real estate?
This is a legitimate question to ask between two types of financial investments with high added value in popular belief. Which strategy is more attractive between investing in gold or real estate?
We are familiar with the main advantages of real estate investment: the advantageous tax system with the LMNP (Non Professional Furnished Rental), tax optimisation thanks to state measures such as the Pinel Law, the Censi Bouvard Law or the Denormandie Law. Other exemptions or tax credits are possible by carrying out work to improve the energy balance of one’s main residence. Buying stone remains a safe and concrete investment to enjoy your assets during your lifetime and to pass on to your children when you die.
The big drawbacks lie in sometimes difficult access, especially if you do not have sufficient capital. Access to loans sometimes resembles a way of the cross with long-term conditions that are sometimes financially very burdensome. The costs associated with a property are numerous and significant: agency, notary, inheritance, maintenance, co-ownership, etc. costs. The last two decades have shown that property prices can also play a rollercoaster ride when the real estate bubble burst or the subprime scandal brought the world’s banks to their knees.
It has been shown that over the reference period 2002 – 2017 the performance of gold has been higher than that of property prices with a 300% increase for gold with a 200% decrease for property. On the other hand, in the case of strong economic growth, gold performs much less well than real estate. Between 1993 and 2002, in the middle of the economic boom in UK, gold lost 20% of its value while real estate increased by 85%.
In other respects, precious metal has many advantages:
- it is much easier to resell. Physical or paper dispossession of gold can be done from home without interminable and obligatory appointments
- taxation and management fees are much less important and direct (no VAT on purchase, progressive exemption from 3 years of ownership onwards)
- the price of gold is the same everywhere in the world. It is said to be fungible.
- all recent studies tend to show that the property yields of recent years have been rather unattractive, with selling prices at their lowest and interest rates that can no longer go down. Moreover, no improvement seems to be on the horizon
- gold is self-sufficient in itself and in the capital invested. Real estate is highly subject to the leverage effect caused by bank loans and their interest rates, which can lead to a poor investment
If you enjoyed this page, read our article on how to invest in the stock market.