How you can invest and buy GOLD ? 2022 Guide to the Yellow Metal

Gold, a safe and countercyclical value

Unlike a stock market investment or an ireal estate investment, gold does not create wealth. Holding gold does not allow you to earn dividends or rents. So why invest in gold ?

The main reason is that gold is a safe haven. For centuries, the precious metal has been used as currency. Moreover, central banks around the world hold the largest gold reserves. The Bank of France has more than 2,400 tons of gold in its vaults and the central banks of the euro zone hold, in total, more than 10,000 tons. This is a way to increase confidence in the currency.

And in the event of a crisis, when investor confidence erodes, it is this characteristic that is sought after: gold has always had value and always will. During banking panics, many savers have the reflex to empty their bank accounts to hold banknotes or buy “real and tangible” gold!

In the management of one's assets, gold can therefore play the role of shock absorber in times of crisis. When shares fall, the price of gold tends to rise: gold is said to be a countercyclical value. The chart below illustrates the inverse correlation between stocks and gold.

Evolution of gold and (American) stocks. Sources: S&P, FRED, Finance Héros.

Although the inverse correlation between gold and stocks is not perfect, we note that gold was up during the bursting of the the financial bubble of the dotcom, the subprime crisis and the Covid-19 crisis.

Invest in gold to protect against inflation

Fiat money can be created infinitely. We speak of monetary creation or more prosaically of “running money”. But by creating too much money we depreciate its value. In other words, we generate inflation.

Contrary, gold is present on Earth in finite quantities. Its value cannot therefore be manipulated. The purchasing power of a gram of gold is stable unlike the purchasing power of a euro, which tends to decrease over time. Which means that in the event of high inflation, the price of gold will tend to increase.

You can therefore use gold as a means of protecting yourself against future inflation. That being said, in the event of moderate inflation, stocks will protect you better, the rise in prices being integrated into the rise in company profits. Historically, it is especially during periods of hyperinflation that gold has played its protective role.

Also read:which investments to favor during periods of inflation ?

Buy gold bars

The first way to invest in gold is to buy gold in the form of bars or coins.  You thus have a recognized currency of exchange, outside the banking system, which can provide security for some of you. However, make sure you have a place to store your gold safe from theft!

You must also distinguish between investment gold (whose purity must be greater than 90% and which is not subject to VAT) and commercial gold, which is found in jewelry or some gold coins.

Buy gold over the counter

You can buy gold at precious metals buying and selling counters.  You will then pay a premium on the amount of gold purchased. The premium corresponds to the difference between the sale price and the price of gold. This is the merchant's remuneration. The bounty depends on the trader, the amount of gold you buy, the quality of the coin and its rarity:

• for a 1kg gold ingot, count on less than 2% premium;
• for a 50 g ingot, count on around 3% premium;
• and for a 20 franc Napoleon coin, around 5% premium.

To invest in gold,  favor bars and ingots with a purity greater than 99%  and whose price is directly linked to international quotations rather than coins whose price varies more in time and space.

Taxation of physical gold

When purchased, investment gold is exempt from VAT. On resale two regimes coexist:

• Taxation under the capital gains regime: 36.2% (19% tax and 17.2% social charges). After 3 years of holding, you accumulate a 5% reduction each year so that after 22 years, your gold is completely exempt from tax (but not from social charges!). Please note, this assumes that:
• your gold is fully traceable (numbered ingot, sealed piece);
• you are the buyer and reseller of gold (nominative invoice).
• Tax on precious metals: 11% on the total amount of the resale, regardless of whether you have a capital loss.

⚠️ Make sure you keep the documents given to you when purchasing gold in order to benefit from the much more favorable capital gains regime.

On the same subject: how should we declare gold for taxes ?

Buy gold Paper

Buying physical gold can be restrictive because keeping your gold represents a risk of alteration, loss or theft. This also represents a cost which is not negligible. Fortunately, you are not required to hold “hard” gold to invest in gold. Several financial instruments make it possible to replicate the price of the yellow metal.

Investing in gold with ETFs

ETFs (Exchanged Traded Funds) are investment funds listed on a stock exchange that replicate a stock market index. There are two types of ETFs for investing in gold:

• ETFs that invest in baskets of shares of gold mining companies (gold mines and exploration companies);
• ETFs that invest in gold futures and which aim to closely replicate the price of gold. We are also talking about ETC for Exchange Traded Commodities or Commodities listed on the stock exchange.

For an exact replication of gold prices, prefer the second type of ETF.

Here is a selection of ETFs that replicate gold prices:

• Amundi Physical Gold (ISIN: FR0013416716)
• Xtrackers Physical Gold ETC (ISIN: DE000A1E0HR8)
• Wisdom Tree Physical Gold (ISIN: JE00B1VS3770)

You can therefore invest in gold from a simple securities account, without having to leave your home! You can find our comparison of the best securities accounts.

✅ Please note that certain life insurance policies also allow you to invest in gold. This is the case of Linxeaavenir, which in our opinion is the best contract for investing in gold. You have access to a gold certificate, which functions like an ETF. The fees happen to be higher than with an ETF.

Buy gold with leverage

Leverage consists of investing beyond your initial investment. So, with 1,000 euros, depending on the leverage chosen, you can buy 2,000, 3,000 or 10,000 euros of gold. You thus multiply your gains, but be careful you also multiply your losses! Several products allow you to invest with leverage. This is the case for certain ETFs, but to benefit from a more effective leverage effect, two types of derivative products are preferred: CFDs and turbos.

Be careful, leverage entails additional risks!

CFDs to invest in gold

CFDs are financial instruments that allow you to obtain the difference between the purchase price of an asset and its sale price; hence his com of Contract For Difference. To invest in gold, this can be practical as you will obtain an almost perfect replication of the prices of the yellow metal.

In this sense CFDs are relatively simple to understand. Simpler than the Turbos which we will talk about later. They also make it possible to obtain a multiplier effect of up to x10 on raw materials.

⚠️ Be careful, however, with margin calls: you must make sure you have sufficient liquidity in your securities account, should gold prices move in the wrong direction.

➡️ To buy gold with CFDs, we recommend our comparison to find the best CFD trading platform.

Turbos for investing in gold

A turbo is a derivative product whose value depends on the price of an underlying asset. The price of gold in this case. The characteristics of the turbos are as follows:

• The deadline – it is not obligatory, in this case we are talking about unlimited turbos.
• The strike price and the knock-out barrier (often the same amount)

At expiration, you receive the difference between the strike price and the price of gold at that moment, all multiplied by a ratio fixed in advance. Be careful, however, if at any point the price of gold falls below the knockout barrier then you lose your initial stake. To invest in the long term, it is therefore recommended to choose a turbo with a low knockout barrier. The closer the barrier is to the current price, the stronger the leverage will be.

Turbos also allow you to bet on falling gold prices, with or without leverage. Turbos are only accessible in a securities account: find the suitable stock broker with our comparison!

The use of turbos and CFDs are especially useful for seizing an opportunity in the short/medium term. They also allow you to short sell gold to position yourself on the downside.

Taxation of paper gold

When investing in paper gold, taxation is that of the chosen tax envelope: securities account or life insurance.

• With the securities account, normal capital taxation applies. Capital gains are therefore subject to flat tax during resale, up to 30% (tax and social charges included).
• With life insurance, the tax regime is slightly more advantageous. After 8 years of holding the contract, you benefit from an annual reduction on capital gains and a reduced tax rate. Life insurance also offers a favorable tax regime in the event of inheritance.

Source: Finance heroes

To start investing in Gold, come and discover our Gold bars and coins, for sale on our website.