Buying gold!!
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Discussion

RichS

Original Poster:

353 posts

244 months

Thursday 2nd December 2010
quotequote all
OK so I was thinking of buying some gold, I guess for various reasons, not least because having a few shiny coins about the place is more exciting that getting zero interest at the bank.

Having done a bit of research, I have a few questions/observations for the massive:

1. The prevailing gold price is generally denominated in US$ per Troy ounce. Presumably this means that if I buy gold in Sterling and then the dollar strengthens against the pound then my investment goes up in value? And would the converse necessarily be true, i.e. if the dollar weakens then the nvestment value will fall? Or is there a "biting point" where, on a weakening dollar, gold benefits from an intrinsic increase in value (i.e. in dollars) anyway because the dollar is seen as more risky and there is a flight to gold? The gold index has risen by about 16% since January- but presumably one needs to discount from that any decrease in the value of Sterling against the dollar. Or am I overcomplicating things?

2. If I wanted to buy sovereigns, there is a c. 15/20% premium over the value in weight over the spot gold price when I buy. This means that when I come to sell, for me to be in the money the gold price needs to have risen by at least the premium for me to see a profit (gold dealers will only buy at the gold price, they don't offer any premium). It's kind of like the bid/ask spread on shares. On Krugers this premium is only 6/7% (presumably because they are less attractive for CGT purposes than sovereigns (I will probably only invest about a grand so CGT is not really an issue)). Is there any other type of coin/vehicle that would attract an even lower premium? Obviously gold bars have an even lower premium but they cost a lot more.

3. Is there any other vehicle anyone might suggest which is directly linked to the gold price (i.e. I don't want to get into the less directly related world of shares in gold miners)?

Thanks!!
Rich

sinizter

3,348 posts

216 months

Thursday 2nd December 2010
quotequote all
Forget the $ v £ and watch the gold prices. If it goes up, clearly your 'investment' has gone up in value.

There are services out there which let you buy gold through their website, which they claim is backed up by gold bullion in storage somewhere. You can also similarly buy Platinum. But whether the services are doing everything they claim is not something I can verify.

Having some gold around can mean that it nearly instantly convertible to cash if required. But having more than a little is somewhat pointless, except as an inflation-proof vehicle to store your money as.

You will always lose a little bit of money between the purchase and sale as you have worked out, unless you manage to sell it privately or through auction or similar to another individual - even then there will be a loss - which will only be negated if the gold prices have risen sufficiently. Personally, I would be very wary of buying from another individual.

Edited by sinizter on Thursday 2nd December 09:37


Edited by sinizter on Thursday 2nd December 09:38

lambysdad

939 posts

269 months

Thursday 2nd December 2010
quotequote all
Go to Dubai, buy sovereigns, blocks, bars or whatever you can get your hands on and feel comfortable bringing back. As i recall, you only pay for the weight and not the design.
I'm sure someone with more knowledge will correct me if i'm wrong though smile

matsmith

1,166 posts

239 months

Thursday 2nd December 2010
quotequote all
Rich, you're correct that buying a dollar denominated asset exposes you to currency fluctuations which can enhance or erode your potential profit or loss.

As you're looking to invest about £1k you're only looking at buying around an ounce. At the moment a 1 troy ounce Krugerrand is £950 whereas a 1 troy ounce bar is £930. The gold bar is the cheapest method of buying physical gold that I know of.

The alternatives (which I wouldn't necessarily recommend) to buying physical gold are buying an ETF, covered warrants, or spread betting which would remove the currency exposure as it's a bet direct on the asset price. For a long term investment these probably would not be suitable.

sinizter

3,348 posts

216 months

Thursday 2nd December 2010
quotequote all
I Love Lamp said:
I really don't get why the value of Gold fluctuates so much.

Yes it can be 'bling', but it's pretty useless non, in comparison to other (more useful) raw materials.
It's inflation-proof and currency-fluctuation proof. Making it something that people want to have in times of uncertainty.

Rude-boy

22,227 posts

263 months

Thursday 2nd December 2010
quotequote all
sinizter said:
I Love Lamp said:
I really don't get why the value of Gold fluctuates so much.

Yes it can be 'bling', but it's pretty useless non, in comparison to other (more useful) raw materials.
It's inflation-proof and currency-fluctuation proof. Making it something that people want to have in times of uncertainty.
And have done for many, many 100's of years.

sinizter

3,348 posts

216 months

Thursday 2nd December 2010
quotequote all
I Love Lamp said:
Rude-boy said:
sinizter said:
I Love Lamp said:
I really don't get why the value of Gold fluctuates so much.

Yes it can be 'bling', but it's pretty useless non, in comparison to other (more useful) raw materials.
It's inflation-proof and currency-fluctuation proof. Making it something that people want to have in times of uncertainty.
And have done for many, many 100's of years.
This is what I don't understand...

Why is it inflation proof? It's a raw material (which can still be mined) so if anything, why does it not depreciate due to the higher volumes in circulation as opposed to hundreds of years ago.

If we print more money, the money is worth less..

I just would have thought that other (more useful) raw materials in this day and age would be a better bet.. I can't of any scenario where gold is the preferred element apart from 'bling', but even then I'd rather have platinum
There is not much more new gold coming into the global economy. It has been used for centuries as currency - it does corrode, it does not get wet, get new currency notes, etc. Gold is gold anywhere in the world - and with very little effort can be changed into local currency or resources or property if you prefer. The same cannot be said of different currencies. Its not like you can carry a sack of potatoes or something and trade to get what you want anywhere you go - Well you might, but that would involve a whole lot more effort.

Platinum is pretty much in a similar state, but it is also used for industrial stuff - gold is not. And is generally less well accepted.

Mostly, it is because people all over the world are actually familiar with the concept of gold.

ringram

14,702 posts

278 months

Thursday 2nd December 2010
quotequote all
Plenty of gold backed currencies have been debased too. (ie) Eastern Roman Empire, Spain etc, etc.
Gold is pointless IMO. Tulips anyone?

sinizter

3,348 posts

216 months

Thursday 2nd December 2010
quotequote all
ringram said:
Plenty of gold backed currencies have been debased too. (ie) Eastern Roman Empire, Spain etc, etc.
Gold is pointless IMO. Tulips anyone?
Gold backed currencies, but never the actual gold. Just means that the rest of the world thought that those currencies were over-valued.

ShadownINja

80,133 posts

312 months

Thursday 2nd December 2010
quotequote all
Is gold really a good investment right now?

http://www.kitco.com/charts/popup/au3650nyb_.html

sinizter

3,348 posts

216 months

Thursday 2nd December 2010
quotequote all
ShadownINja said:
Is gold really a good investment right now?

http://www.kitco.com/charts/popup/au3650nyb_.html
Unless you have acquired a time machine, it is as good as it was at any point in time. Might go up, might go down. IMO, it's never going to come down to those previous low prices in the next 4-5 years.

ShadownINja

80,133 posts

312 months

Thursday 2nd December 2010
quotequote all
sinizter said:
ShadownINja said:
Is gold really a good investment right now?

http://www.kitco.com/charts/popup/au3650nyb_.html
Unless you have acquired a time machine, it is as good as it was at any point in time. Might go up, might go down. IMO, it's never going to come down to those previous low prices in the next 4-5 years.
I would have used the same reply re the time machine to you...

RichS

Original Poster:

353 posts

244 months

Thursday 2nd December 2010
quotequote all
Thanks as ever for the thoughts and views- of course what has gone up can go down, but reading some of the commentators here: http://www.fool.co.uk/news/investing/investing-str... makes me think there is still a way to go...

marky1

1,094 posts

226 months

Thursday 2nd December 2010
quotequote all
sinizter said:
Forget the $ v £ and watch the gold prices. If it goes up, clearly your 'investment' has gone up in value.
Completely disagree with that. Gold could go up and you could still lose if you sell and convert back to £ which is what the OP would no doubt do as he lives in the UK and he asks what would happen with currency fluctuations.

Say he buys gold @ $1250, with an FX rate of 1.60 that would be £781.

Say he sells @ $1350. If the rate is 1.80 he has lost £31 per oz!

Yes the price has gone up, but have you made money - no.

RichS

Original Poster:

353 posts

244 months

Thursday 2nd December 2010
quotequote all
Yes, that was my original thinking- but then I thought a bit further- as I posted in point 1, if the Dollar slides in value against the Pound to $1.80 then that maybe would indicate a weakening of confidence in the Dollar- thereby itself maybe pushing the price of gold up, so it will "tread water" against the Pound. Maybe. But I could be wrong.

Sorry, can't work out how to quote a previous poster.

R

ringram

14,702 posts

278 months

Thursday 2nd December 2010
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There are probably better commodity plays out there...

bogie

17,100 posts

302 months

Thursday 2nd December 2010
quotequote all
I think its like any boom ...if you was in a few years back your laughing now

by the time everyone is in on the act, and its everywhere, its just speculation talking it up

...it will come down sooner or later I reckon, just dont get caught out buying into something near the peak of craziness

its just opinion after all...theres plenty more of the stuff being mined every day , tens of years worth left smile

marky1

1,094 posts

226 months

Thursday 2nd December 2010
quotequote all
RichS said:
Yes, that was my original thinking- but then I thought a bit further- as I posted in point 1, if the Dollar slides in value against the Pound to $1.80 then that maybe would indicate a weakening of confidence in the Dollar- thereby itself maybe pushing the price of gold up, so it will "tread water" against the Pound. Maybe. But I could be wrong.

Sorry, can't work out how to quote a previous poster.

R
Yeah I understand what you are trying to say but Gold does not have perfect correlation with the USD. So the situation you mention here could happen, but it could just as likely not happen!
If you were really wanted to buy $ (from £) to buy gold, to try and profit from an increase in gold which you would then sell and change back to £ then you need to hedge the FX risk.
Not suggesting you do this but that's how it would work if one wanted to do it properly and in reasonable amounts to make it worthwhile.

cailean

917 posts

203 months

Thursday 2nd December 2010
quotequote all
Much easier to just buy a Gold ETC (Exchange Traded Commodity), you can also buy them for all types of commodities. Just stay away from the leveraged ones.

ringram

14,702 posts

278 months

Thursday 2nd December 2010
quotequote all
If you are buying gold for safety then what do you think will happen when the st hits the fan?
What about counterparty/default risk?
If you are buying it as an inflation hedge then whats wrong with index linked gilts/tips?

Or are you wanting to speculate?