Guide to investing in gold

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We present a complete guide to investing in gold in which we explain the different ways of investing in gold, such as physical purchases, CFDs on gold, gold trading on Forex, etc. In addition, you can consult our lists of the best gold brokers with regulated brokers.

Best brokers for trading gold

In January 2021, and after years of criticism, the world’s largest banking institution, J.P. Morgan, predicted that bitcoin would reach 146,000 dollars and would replace gold as a safe haven asset. They are not the only experts who point in this direction, although there are also those who describe this as utopian nonsense. The future will tell who is right. At present, investing in gold remains a safer bet than investing in digital currencies.

In bad economic times, gold rises, and this characteristic means that, despite the emergence of new players, it remains the safe-haven asset par excellence. A good example of this is that on 7 August 2020, in the midst of the economic crisis resulting from the coronavirus pandemic, gold reached an all-time high of 2,089.20 dollars, according to Investing. Although, it must be said, the opposite is also true: when the economy is buoyant, the price of gold tends to fall. In fact, the relationship between gold and the dollar – the currency in which it is usually quoted – is usually inverse: when one goes up, the other goes down. And vice versa.

Why invest in gold?

Gold is the world’s oldest currency and, obviously, its trading is by no means a new phenomenon. What has changed, of course, is the way it is traded. There are a large number of gold brokers on the market who specialise in gold trading. Beyond these, it is rare to find a broker that does not have gold in its portfolio of assets. It is part of that portfolio, among other things, because it is a safe bet: the economy will continue to experience moments of financial crisis with its consequent impact on the markets, and, whenever this happens, traders will turn to gold as a safe asset in the midst of the storm.

Gold trading is absolutely widespread and reaches, as already mentioned, professional and retail traders, but also institutions and central banks. These four are divided between the different variants of gold trading, from physical gold transactions to gold trading with CFDs and gold mining shares. Did you think that the only way to invest in this metal was to buy gold bullion? As you can see, nothing could be further from the truth.

The basic reason that makes gold such an interesting asset, and thus drives the emergence of many brokers to invest in gold, is its ability to shed light on remarkably opaque times. But there are many more: it is usually an excellent long-term investment; it is perfect for diversification (precisely because its behaviour is inverse to that of most assets, so that what is lost in one place can be gained in another); it is also characterised by its great liquidity (you can sell it whenever and wherever you want) and, finally, it lends itself to multiple types and variants of trading.

2 factors affecting the gold price

Having reviewed the different ways to invest in gold, and before giving you some tips on how to choose the right gold broker for you, it may help you to choose your investment method if you know the main factors that affect the price of gold.

  • Price of the dollar

We have said it from the outset: the behaviour of gold is the inverse of that of the US dollar. This is why this precious metal is considered the best safe-haven asset, as it responds with rises in bad economic times. In times of financial uncertainty, gold tends to rise.

  • The demand

Reading the above, one might think: “So, if the economy is buoyant, does gold plummet? The answer is “no”, and this is precisely what makes gold a relatively safe investment asset. The demand for gold is never going to collapse because, if it is not driven by market doubts, it will be used primarily for jewellery, but also in other sectors such as electronics.  It is also a scarce commodity, as the amount of gold available in nature is limited.

Ways to invest in gold

The fact that various private and institutional traders can be involved in gold trading means that there are different ways of investing in gold. Depending on the objective of each trader, what he intends to risk or the time frame he is willing to give to his investment in order to make it profitable, one or the other way of investing in gold may be chosen. And, in addition, it will be necessary to choose the gold broker that best suits the chosen operation. Or, perhaps, the opposite is true: if you are not very knowledgeable in this area, you should contact a gold broker, who, with his experience and your characteristics, will decide which variant is best suited to your needs. He will put all these possibilities on the table:

Investing in physical gold

The first possibility is to go classic and forget about the most modern forms of investment. Buy gold and keep it in a safe deposit box, whether coins or bullion. As it has been done all our lives. You can buy physical bullion or coins and, of course, you will have to be extremely careful in storage. If you are very daring, you will store your gold at home, although this is certainly not (by far) the wisest decision. Much more reliable is to store it in safes that are guarded by private companies. Secure environments as far as possible, so as not to be a shouting call to thieves.

For those who choose this variable, storage fees will be charged. The physical purchase of gold is ideal for those who intend to invest for the long term.

Gold ETF

Exchange-traded funds (ETFs) are a product that is a cross between mutual funds and equities, where investors do not own the gold. It is made up of several assets (like mutual funds) and, at the same time, it is listed on the stock exchange (just like a share). Ergo, they offer diversification and flexibility and are a simple and cost-effective way to invest in gold and other assets. Their main features also include efficiency, transparency and liquidity. There are several companies specialised in the marketing of these financial products, but they are mostly operated by large investors.

Gold mining shares

If you decide to adopt a riskier investment strategy and are prepared to lose money if the going gets tough, you may consider investing in gold mining stocks. The main (and almost only) advantage is that the return is likely to be higher than the other varieties if your predictions are correct, as their value is usually much more price sensitive.

However, there are many more disadvantages to investing in gold mining. Most notably, there is a risk that mining companies will not find gold or that they will not be able to grow profitability in mines already discovered. Investing in shares of mining companies may be the least interesting possibility for retail traders.

Forex gold trading

As we said at the beginning, gold is an asset that is present in the showcase of practically all Forex brokers. In some cases as just another possibility, and in others, with gold brokers fully specialised in this investment. It is usually quoted as XAU/USD and brokers usually reduce leverage considerably. One of the most remarkable aspects is that, unlike other currency pairs, which do not normally go above 100 pips per day, it is not uncommon for gold to go above 2,500 pips and can even go as high as 10,000 pips.

The liquidity of the gold market is sufficient to make it feasible to use any kind of tool that can help to predict its price, such as technical analysis. It should also be borne in mind that the volatility of gold is greater than that of the usual exchange rates between currencies. This type of investment is suitable for both short-term and long-term strategies.

CFD trading on gold

Gold CFD trading could not be missing from this list. The fame of ‘Contracts for Difference’ (with all the risks that must always be taken into account) is growing every day. Gold brokers offer spreads that usually range from 0.10 to 0.50 dollars. This type of investment in gold allows the use of leverage (also appreciate the risks in this regard) and its transaction costs are lower than when buying physical gold.

How to choose a broker to invest in gold

Surrounding yourself with the best is always a good idea. It’s a truism, but it bears repeating: if you go with a quality, experienced, reliable and trustworthy gold broker, you have a much better chance of making money, or in other words, the chances of losing money are greatly reduced.

Brokers to invest in goldCFDs GoldMining sharesFutures and options
XTBYesYesNo
AvaTradeYesYesYes
eToroYesYesNo
PepperstoneYesNoNo
Plus500YesYesYes
Admiral MarketsYesYesNo
IC MarketsYesNoYes
XMYesYesNo

Overview of gold brokers and investment vehicles

This does not mean that it is enough to choose a safe online broker, as the outcome of an investment transaction depends not only on matters that an expert can handle, but also on external factors that are absolutely uncontrollable. However, a good gold broker will be able to predict them more accurately.

  • A regulated broker: therefore, the first piece of advice is to look for a regulated broker. All the ones we offer at OkBrokers are, so we suggest you use our selection to choose one of them.
  • What does the broker offer? The list has already been narrowed down considerably, as we are only thinking of regulated brokers. The next step is to look at the features and what they offer. Although there won’t be many differences, you should analyse what they offer in terms of commissions, leverage and in general, learn about the modus operandi of each of them.
  • Opinions: you will have no trouble finding opinions from other traders about the performance of the different brokers specialising in gold. Whether in forums or on specialised websites, consult, inquire, scrutinise in depth what investors’ experiences have been like with these online brokers.

How gold is taxed in Spain

bBefore borrowing what the Tax Agency says about the Special Regime for investment gold, we would like to give you one more piece of advice: if you decide to enter the world of investment (whether in gold or any other asset), it is just as important to surround yourself with safe online brokers as it is to surround yourself with people who will keep your accounts for you (unless you have the knowledge to do so yourself). It is worth paying a fee to an accountant and avoiding unpleasant surprises.

Now, this is what the Tax Agency says about investment gold:

The Special Scheme for investment gold is a compulsory scheme, subject to the possibility of waiver on a transaction-by-transaction basis, applicable to transactions in investment gold where such transactions are generally exempt from VAT, with partial limitation of the right to deduct.

What is considered investment gold:

Gold bars or sheets of a fineness equal to or greater than 995 thousandths and the weight of which complies with the ninth paragraph of the Annex to the Law.

Gold coins meeting the following requirements:

  • Of a fineness equal to or greater than 900 thousandths.
  • Minted after 1800.
  • They are or have been legal tender in their country of origin.
  • They are commonly traded at a price not exceeding 80 % of the market value of the gold contained therein.

The gold coins included in the list to be published in the Official Journal of the European Union before 1 December of each year, valid for the following year and for the years thereafter as long as the published list is not amended.

Unless waived by the transferor (when a number of conditions are met), the following gold transactions are exempt:

  • Supplies, intra-Community acquisitions and imports of investment gold. The supply includes loans and swaps, as well as transactions under futures or forward contracts, in so far as they relate to investment gold and involve the transfer of the power of disposal.
  • Mediation services in the name and on behalf of others in exempt transactions.

This exemption does not apply:

  • Services relating to investment gold (except for certain intermediation services)
  • Intra-Community acquisitions of investment gold preceded by a supply in the Member State of origin where the exemption under this special scheme has been waived.

Where this exemption is used in conjunction with the exemption provided for in Article 25 (supplies of goods intended for another Member State), the exemption for investment gold shall prevail, unless waived.

In addition, Personal Income Tax (IRPF) is levied on the capital gain, i.e. the difference between the purchase price and the sale price.

Why does gold protect against inflation?

Although it will be included later in the section on the advantages of investing in gold, we would like to give a space of its own to this feature that we consider to be of great importance. It has to do, once again, with the safe-haven quality that gold confers on the fact that it goes against the markets.

For example, when it is felt that they are making too many euros, the value of gold goes up. There is much less gold in the world than euros, so if the above happens, there will be many people wanting to sell gold and, if there is also an abundant supply, the price will rise. This makes the price of gold rise considerably in periods of inflation, which makes it a good long-term investment.

Advantages of investing in gold

Many have already been mentioned throughout the article.

  • Stability: not subject to the volatility inherent in other assets that can be traded.
  • Liquidity: it is possible to sell it whenever and wherever you want.
  • Gold is a hedge against inflation: if inflation goes up, so does gold. In other words, in times of high inflation, investing in gold is a very stable option.
  • Portfolio diversification: it is useful to diversify your investment, especially since it does not respond in the same way as other assets. What you may lose on one side, you will gain on the other.
  • Products are made from gold: gold is used in the manufacture of products such as jewellery, so demand for gold is not likely to decline.
  • It is not devalued by governments: gold is not at the mercy of political decisions.

Disadvantages of investing in gold

  • Storage: if you opt for physical purchase, it needs to be stored. And it is not easy to choose a place to store gold.
  • It is profitable, but not that profitable: its stability, if your intention is to make significant profits, could be a disadvantage, as there are other products that offer the option of making more profit in the long term. But also losses. It all depends on what you are willing to risk.

Conclusion

The advantages, as we have seen, are more numerous than the disadvantages, and, undoubtedly, the fact that there are more and more gold brokers is an added attraction to this type of investment. Thanks to this, the possibilities have multiplied and go far beyond the physical purchase. It is an asset that protects your portfolio from inflation and stands up excellently to economic downturns. At the moment, 2021 is not being very positive for gold, as it is currently (as of 17 March 2021) worth $1,733.30, and started the year at $1,901.60. Therefore, the value of gold has fallen by 8.8% so far this year. Even so, gold trading is still a good option, but always be aware of the risks, which are greatly minimised if you choose one of the many good brokers to invest in gold.

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