What is investment gold?
Summary
Investment gold is a collective term for banking gold and government gold coins
Investment gold is characterised by its high purity
Investment gold is traded close to the gold price
Some ETFs use banking gold as a basis, so-called gold ETFs
Switzerland is one of the largest trading centres for investment gold
An introduction to investment gold
Gold itself is an element of metals, a precious metal to be precise. It can be moulded at relatively low temperatures and even occurs naturally in solid form.
Today, gold is used in various areas: in dentistry, jewellery production, industry and, of course, in the investment business.
Not all gold is so-called investment gold, which is characterised by a certain purity and transparency in terms of production. Investment gold is tax-free in many countries or is at least traded at a reduced tax rate.
Register now and buy and sell investment gold on PreMeSec.ch!The difference between banking gold and investment gold
In Switzerland, bars and discs of gold with a purity of at least 995 thousandths count as banking gold. These bars and discs must bear at least the fineness and stamp of the smelter or assayer. Such bars or discs are usually traded in weights ranging from 1 gram to 12 kilograms. Banking gold is also investment gold.
Gold coins minted by the state, which are traded close to their gold value, do not count as banking gold but nevertheless as investment gold. Typical examples are Swiss Goldvreneli, Krugerrand, Maple Leaf and Vienna Philharmonic gold coins. All of these coins were minted by the state and were or are official means of payment in their countries of origin. They are considered investment gold because they are traded close to the price of gold and are exempt from VAT in Switzerland.
Investment gold is therefore the physical form of gold that is suitable as an investment.
Use of investment gold
Gold is traded and hoarded by private individuals, institutions and governments or their central banks.
For private individuals and companies, investment gold is the most efficient way to buy physical gold or to secure assets with gold. They rely on the metal, which is considered crisis-proof, to protect assets from inflation or turbulence on the stock markets. In this function, gold is more similar to a currency than a traditional investment. It can be seen as a store of value whose value, unlike a currency, cannot be influenced by an individual state. Like a stable currency of an industrialised country, gold is accepted by almost all banks in the world and large assets can be easily transported.
Central banks use investment gold as a means of creating confidence in their own currency. When a currency suffers a loss of confidence in the markets, the central bank often buys gold to boost investor confidence in the currency.
Banking gold is traded internationally and is accepted all over the world.
Advantage of investment gold
Investment gold is a standardised, value-dense, non-perishable, coveted, internationally known and widely traded product. This makes trading much easier and more transparent than with many other products.
Due to its natural limitation, it cannot suddenly be produced in abundance like currencies, for example, and the supply of the commodity is not controlled by a single nation.
In contrast to other commodities, the industrial use of gold is relatively limited, which severely restricts the influence of industrial demand on the price.
Gold can fluctuate greatly in value, just like other investments such as shares, bonds or commodities. However, the risk of gold becoming worthless overnight or suddenly being worth only a fraction, as happened with Swissair or CS, is much smaller.
The high value density and mobile nature of gold make it easy to transport assets across borders. This is much more difficult with shares, bonds and other securities, whereas securities can be transported easily, as the underlying value, such as the company in the case of a share, remains in the original country.
Criticism of investment gold
Many experts criticise gold and even deny it its status as an asset class. Even if some of the criticism of gold is justified, the total rejection of gold is just as questionable as the unfounded exaggeration of its value.
One of the most popular criticisms is that gold pays no interest. This point is correct, but we have seen in recent years that equities and government bonds do not necessarily pay interest. Even if interest rates are slowly rising in these areas, this does not mean that a saver will make a profit after deducting administration and custody costs.
Storing gold costs a lot of money. This point needs to be considered in a differentiated way, of course the storage of large quantities of gold in high-security warehouses costs money. However, small quantities of gold can also be stored at home or cheaply in safe deposit boxes and can be insured by household contents insurance. It should be noted that storing shares in the bank's share deposit account also costs money and dividend payments are not guaranteed.
The storage of investment gold
As investment gold is a physical product, it must be stored. Depending on the quantity and security requirements, it can be stored at home, in a safe deposit box, in collective or individual safekeeping at the bank or at a specialised company. In any case, you should ensure that the gold is stored with insurance.
The cost of storage can vary greatly and depends on the insurance costs, among other things. Storage at home is cheap, but insurance is more expensive than in a specialised storage facility. Safe deposit boxes at banks are available from CHF 100, while private storage companies offer them from CHF 500. Collective individual safekeeping costs 0.35% - 1.6% per year.
What is the significance of investment gold for Switzerland?
Switzerland is one of the largest gold trading centres in the world, making banking gold very important for the economy. Gold is not only traded virtually on the stock exchanges in Zurich and Geneva, but is also physically imported into the Swiss Confederation, refined and re-exported. Four of the world's largest gold refineries are located in Switzerland and large parts of their production capacity are used for banking gold.
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ETFs and precious metal accounts as an alternative to banking gold
ETFs have become increasingly popular with consumers in recent years. These exchange-traded funds are traded on the stock exchange and contain a wide variety of securities or goods, including gold ETFs. In the case of gold ETFs, a distinction must be made between those that are based on physical banking gold and those that only reflect the value of gold through swaps or futures transactions. The latter have the disadvantage that they involve a counterparty risk: if the counterparty to the swap or forward transaction does not honour the contract, the value of the ETF may be forfeited. ETFs have the advantage that they are very easy to trade and that investors do not have to worry about storing the precious metals themselves. In addition, ETFs are special assets and remain the property of the customer even if the bank where the ETFs are held goes bankrupt.
Precious metal accounts are another alternative to physical banking gold. These are accounts that are not held in Swiss francs or euros, but in grams of gold. Like cash accounts, precious metal accounts are credit balances that you have with a bank; if the bank goes bankrupt, you will receive a maximum of CHF 100,000 from the deposit protection scheme. With some banks, precious metal accounts are excluded from deposit protection. Depending on the structure of the contract, it is also possible to obtain the precious metal physically from an account for an additional charge.
Read our article comparing different gold investments!
Taxes on investment gold
Investment gold is exempt from VAT in Switzerland, but not from wealth tax. The Federal Council has exempted investment gold from VAT in order to enable Swiss citizens to invest in physical gold without paying VAT and thus prevent market distortion in neighbouring countries.
However, it should not be forgotten that gold can represent a considerable asset, which is why it is not exempt from wealth tax and must be declared in the tax return. Read the article Taxes on gold.
Buying investment gold
In Switzerland, the economic importance of banking gold means that it must be traded. The house bank usually sells investment gold and other precious metals, but specialised dealers also offer investment gold. The price of investment gold is based on the market price of gold, but is always higher as the production of the bars and coins also has to be paid for. The heavier the gold bar or coin, the smaller the share of production costs in the price.
Due to the high level of security in Switzerland and the sophisticated concept, investment gold is an excellent buy on PeMeSec.
Sell investment gold
If you want to sell gold, you should be aware of the prices that can be achieved. While only the gold price minus a melting discount is paid for old jewellery and dental gold, more than the gold price must be demanded when selling investment gold. As investment gold can be resold almost immediately without melting it down, there are no costs for melting down or hedging costs to be deducted from the value of the gold.
Due to the high level of security in Switzerland and the sophisticated concept, investment gold can be sold excellently on PeMeSec.
Frequently asked questions about investment gold
What is investment gold and why should I buy it?
Investment gold is physical gold that is produced either in bar or coin form. Unlike jewellery, industrial products or dental gold, investment gold is exempt from VAT.
What forms of investment gold are there?
Investment gold is produced as bars or by state mints as coins.
Where can I buy investment gold?
Investment gold can be bought from banks, precious metal dealers or on specialised platforms such as PreMeSec.ch.
How is the value of investment gold determined?
Investment gold is traded internationally. The value is based on the market value of gold. This can be read in the daily newspaper and on various websites.
Are investment gold and physical gold the same thing?
Investment gold is a subset of physical gold which also includes gold jewellery, dental gold and other gold products. Gold certificates, ETFs or bank gold accounts are not physical gold.
Is gold an investment?
In general, precious metals such as gold are also categorised as investments.
Gold can generate income by increasing in value, i.e. through price gains. If one applies the narrow definition for financial investments that an investment must create added value, then gold, unlike a machine, factory or company, cannot do this. In addition to price gains for the investor, shares can also generate profits through dividends.
Some experts categorise gold not as an asset class but as a currency class. This is because gold, like currencies, serves as a store of wealth and is easily tradable. Unlike a currency, the value of gold is not influenced by a central bank, which can be an advantage.
What influences the price of investment gold?
The price of investment gold is determined via the stock exchange. Various factors influence the price of investment gold. The most important are the demand for jewellery, investor sentiment and central bank demand for gold. In recent years, demand from the new middle class in China and India has had a growing influence on the price of gold. Particularly in India, where jewellery is bought as an investment and a hedge for women, the new middle class is increasingly buying gold.
Investors around the world buy gold in times of economic uncertainty to protect their money from turbulence on the stock market or devaluation through inflation. Fear of war also often prompts investors to buy gold.
Central banks buy gold to improve investor confidence in their currency. After central banks sold a lot of gold in the 00s, they have been building up gold reserves again in recent years. To what extent this has to do with the discussion about the end of the US dollar as the reserve currency cannot be said with certainty.