It’s easy to see why physical gold can be a sensible, solid asset, but understanding the in’s and out’s of investing in gold is another story. To help us paint a clearer picture, Auvere’s CEO, Steven Feldman shared a few golden nuggets of wisdom on why investing in physical gold and 22 and 24 karat gold jewelry might be one of the most sound and stylish investments you can make.
A: Why is the price of gold always changing?
SF: The gold price is determined by the trading activity of buyers and sellers on an exchange, just like stocks. While its price may fluctuate, one can reasonably expect that the price will also continue to go up.
A: Why do you expect the gold price to go up?
SF: Many people would be surprised to know that since 2000, the price of gold has appreciated more than the S&P 500. There are a number of factors behind that price rise. One is just basic supply and demand – it’s difficult to mine gold, and there is a growing population of buyers around the globe. Much of that demand comes from Asia where buyers know that gold jewelry is both adornment and a way to preserve purchasing power.
A: What are the advantages of investing in physical gold?
SF: Gold offers a way to invest in a real, tangible asset, and unlike stocks and bonds, it can be held in your hand or worn on your body. Gold can’t be destroyed by fire, water, or even time. It is extremely liquid, portable and can be sold anywhere in the world without the need for an exchange.
Investing in gold doesn’t require any particular knowledge, unlike art or antiques. It’s also low maintenance, unlike large investments such as real estate. Gold also has no credit of counterparty risk, which means that it’s the only financial asset that isn’t simultaneously some other entity’s liability. That’s an advantage unique to gold.
A: What are ETF’s and how do they differ from investing in physical gold?
SF: An ETF is an Exchange Traded Fund. There are a number of gold-backed ETF’s which are basically trusts that own physical gold. The investor owns a share in the trust, not the gold. As such, they are not designed for investors who want to own gold, just those who want to own or trade the ‘price’ of gold. The big owners of gold ETF’s are typically hedge funds and other institutional investors.
It’s important to note that bullion ETF’s also come with counterparty risk. They force the investor to rely on management proficiency, fund structure, chain of custody, operational integrity, delivery agreements, and regulatory oversight. When you buy physical gold, you avoid all of these risks and buy a safe asset in the most secure manner.
A: What has been the impact of Bitcoin on gold?
SF: Bitcoin has been a boon to gold. First of all, it has brought back the language of alternative currency and store of value, which gold has been for thousands of years. Moreover, there are a lot of Bitcoin owners with profits seeking to diversify into gold.
A: Has gold always been a smart investment?
SF: The statisticians would say yes. And the reason they would say that is two-fold. First, in the short run, it acts as a diversifier against the more conventional assets such as stocks and bonds. If the market corrects or worse yet, there is a financial crisis; the gold price is likely to appreciate. Second, in the long run, it appreciates steadily just based solely on supply and demand factors as well as status as an alternative currency. I agree with the statisticians.
A: Who buys most of the world’s physical gold for investment?
SF: Gold is primarily bought by global central banks for their official reserves, by exchanges and ETF’s, and of course, by institutional and private investors. Traders may buy and sell gold daily, but most physical gold is purchased as a long-term investment.
A: What’s the advantage to purchasing 22 and 24 karat gold jewelry?
SF: True gold jewelry is a financial investment that you may enjoy on a regular basis, unlike gold bullion which must be stored in a safe. 24 karat gold jewelry contains 99.9% real gold, while 22 karat gold jewelry contains 92% real gold. The simple statement is that if you purchase Auvere jewelry, you can reasonably expect it to appreciate over time and have a definitive, achievable asset value if and when you need it.
A: How is that different than other jewelry?
SF: Let’s take diamonds, for example. The diamond market is dominated by just a few companies who control the supply and hence the price of diamonds. There is no true market or exchange to sell back your diamond. As such, the vast majority of diamonds depreciate over time. And of course, costume jewelry, which is often priced higher than an Auvere 22k piece is highly likely to be worthless the day you buy it.