A four Step Plan: Adding Gold to your Investment Portfolio

The Indian love affair with gold can be traced back thousands of years – from past empires to present day political figures and celebrities – they have all taken a strong interest in gold investments.

In fact, the Indian government plays a crucial role in the world gold market and the Central Bank of India has accumulated significant gold reserves with consistent buying over the last several years. While the government uses gold investments as an economic hedge, the domestic sector has also increased its gold holdings for cultural and traditional reasons – particularly for weddings and cultural festivals, as well as investing for their children and grandchildren.

Gold has been around forever, why buy it now?

With the increasing global economic distress, gold has emerged as a safe and liquid form of investment. The extreme volatility of the world markets and their bleak performance has undermined investor confidence. Further instances of currency printing will only contribute to the rising inflation rate.

Step One: Learn about your options

For investment purposes, gold is offered in three forms: Cast Bullion, Minted Bullion and Coins.

• Cast Bullion: Pure gold poured (or “cast”) into bars of varying sizes.

• Minted Bullion: Pure gold bars that have been polished and bear the stamp of the refiner.

• Coins: More appropriate for advanced investors as the gold coin market is more complex than the bullion market. Coins have a face value and some are collectors’ items.

Step Two: Set your budget and understand the pricing of gold

Before rushing over to a bullion dealer, you need to set your budget. Gold bullion is available in a range of sizes starting at 1 gram and going up to 15 KG – so there will be an option for you no matter what your budget. Generally, most people choose the standard 1 ounce, 50 gram or 100 gram bars, which are easy to store and liquidate due to their popularity.

Unlike buying a piece of gold jewellery which is often sold at a fixed retail price, the price of buying gold bullion is ever- changing, and is calculated as the spot price plus premium. The spot price is the base price quoted on gold markets. This is the price at which huge central banks can buy their gold investments. For the rest of us, we need to pay a premium on top of this spot price to acquire our gold. The premium consists of the refiner’s cost of minting the bullion and the seller’s commission.

Depending on the volume of gold you are purchasing and your bullion dealer, there can be a significant difference in the commission costs (premium). So, it is worthwhile doing your research and shopping around. Like most products, premium is proportionately lower when you are buying a larger bullion product. It would be worthwhile to diversify your gold bullion in some smaller and more liquid bullion (e.g. the 1 ounce bar or 50 gram bar) rather than investing in one large bullion that is equal to the whole of your budget (e.g. a 1KG bar).

Step Three: Choosing a trustworthy dealer

Purity is crucial when it comes to buying gold: just as you seek the most karats in your gold jewellery, you will need to be certain about the purity of your gold bullion.

The purest gold bullion is 99.99 pure (the four nines) and investment grade bullion will always have 99.99 or 9999 stamped on the gold bar.

Looking out for the 9999 and the refiner’s stamp is important as some traders try to make their own bullion by melting gold jewellery – which leads to an impure product mixed with other metals. It is absolutely imperative that you only buy from a reputable and trusted dealer that only sells investment grade ‘four nines’ bullion such as Perth Mint, PAMP bullion or ABC Bullion.

Step Four: Storing your gold

As with your precious gold jewellery, you must secure your gold bullion in safe storage such as a personal safe or bank safe custody vault. If these options are not available to you, you will find that the most trusted bullion dealers also offer storage facilities and will even insure your investment for a small fee.

Buying gold in Australia: The quick 4 Tips

1. Choose bullion from brands which are classified GST-exempt in Australia, such as PAMP, ABC Bullion and Perth Mint.

2. Purchase bullion from a large, trusted dealer who will guarantee to buy back your bullion when it comes time for you to sell and has a physical office/showroom presence.

3. Purchase bullion from Authorised distributors of the products they sell to ensure the products are received direct from the source.

4. Avoid derivative products such as gold ETF’s (Exchange Traded Funds); this is “paper gold” and its value does not necessarily reflect the gold price.

Ossie Ahmad is the General Manager of Bullion Money, one of Australia’s largest bullion dealers. For more information please visit www.bullionmoney.com. au or come and see us at our office – Level 1, 9 Phillip Street, Parramatta. NSW 2150