Is gold a good investment?

Heading for a record high?

In its May 11 edition, Forbes recommended that people invest in gold, as it was heading for a record price. Forbes predicted that it would achieve a price of USD 2200 per ounce. Despite having risen 10% this year, they are forecasting a further 8% rise. So, is gold a good investment?

The issue is, if we agree with Forbes to make an investment in gold, how do we do it? Do we buy shares in a gold company or physical gold? If we buy physical gold, what margin would we pay on purchase, and if we wish to sell it, what will the transaction cost be? Secondly, if the US dollar is not our natural currency, what currency movements may we expect to occur? The third consideration is, will be subject to sales tax and gains taxes.

Physical gold comes in coins, lingots, and bars. Most commonly, the way people purchase gold is determined by the amount they wish to buy. Tradeable gold bars are 350-430 Troy ounces. Start before fees, their value is in excess of USD 700,000. Not surprisingly, first investors who choose to hold physical gold start with ingots and coins, but it’s essential to realize that they will always be sold with the retail margin included.

The alternative

An alternative to buying physical gold is to buy Gold Exchange -Traded Funds. Such funds charge entry and exit fees plus an annual management fee.

Finally, investors can buy shares in gold companies or a portfolio of gold companies. This is not without risk as gold companies, high gold companies, face other than commodity risk.

Gold has long been seen as a reserve currency, but that does not mean that is not illiquid and will not go down in value.

Today, the gold industry has its investment specialists who understand when to enter and exit the investment market. For most investors, who choose to hold a balanced portfolio, gold in some form, is commonly seen as an appropriate long-term investment. Gold is part of the alternative asset classes. Investors should always seek professional advice based on their circumstances from a professional advisor.

By Paul Raftery, CEO, Projects RH, based in Sydney.