As good as gold ….

Today I had an interesting call. A lady rang to ask me how to invest in gold. She told me the story of her very affluent grandfather, who had always told her to buy gold as a way of protecting her wealth.

Her question was how to do it. Should she buy into a managed fund that buys and hopefully actually hold the gold, should she buy an ETF that is linked to gold prices using financial derivatives and futures? Or should she cut out the middle man and buy shares in a gold mine, or should she buy the real thing?

Gold prices have surged in recent weeks on the back of buying pressure by India and China. Uncertainty around the global trade war has investors spooked and moving into gold as a hedge to protect their wealth.

In my opinion, gold is like buying a residential section. The only way to make a profit is to sell it to someone else for more than you paid yourself. If you hold the section for 10 years and the cost of money is 3.5%, your section needs to increase in value more than around 50% to make a profit. Why, because the section doesn’t produce an income, just like gold. All the profits must come from inflation and there is a cost of not getting a regular return. This is called the opportunity cost.

If we don’t get gold inflation, we don’t get a profit.

My advice around owning gold was simple. If you really want an exposure to gold, take a visit to your favourite jeweller, buy a beautiful 24 carat gold necklace and keep it safe. Insure it and wear it out. Enjoy the tactile feel and the warmth of the gold and the joy of owning something so lovely. Even if you don’t get inflation that pushes up the value of your beautiful asset, at least you get the joy of owning it.

John Barber
WealthDesign – a life well planned