Australia is the world’s second largest gold producer (next to China), mining more than 326 tonnes of gold in 2019. Gold mining is the second largest employer in the mining sector, providing jobs (directly and related) for more than 55,000 Australians. Through the generation of wealth and creation of jobs, gold mining contributed more than $19 billion to the economy in 2018/19.
Australia has the world’s largest economic demonstrated resources (EDR) of gold at 10,070 tonnes or 18% of the total global EDR. As Australia’s fourth largest export commodity, the gold industry generates annual exports in excess of $23 billion. Australia has 14 of the world’s largest gold projects, 11 of which are in Western Australia accounting for almost 70% of the nations gold production. Of all expenditure on mineral exploration in Australia, gold explorers and miners invested 40%, which was valued at $1.1 billion in 2019.
When stock markets collapse, the price of gold generally rises in response. Gold has traditionally been seen as a safe haven in times of instability, be it economic or political. However, gold can also be useful as a stand-alone investment. This helps diversify your portfolio.
Physical Asset: The most obvious option, but not necessarily the easiest, is to buy physical gold and owns them directly. You can buy physical gold from many dealers, including online. Some even offer storage services together with gold. For example, you must organize your own memory in a secure setting field.
Gold can be purchased in the form of coins, bars, or even jewelry; The way it comes is not as important as the crowd and purity. The premiums when buying gold, the rarity of the currency, or artistic jewelry work, should not be really important, but it is better to buy as close as possible to the market price of gold.
Gold ETF: In an ETF, they have own the Fund, while the Fund has physical gold. This gives you a commitment in gold without having to take care of the storage or buying and selling of gold. ETFs are traded on stock exchanges just like shares, making them easier to buy and sell as required.
Gold mining companies: A third way to invest is in companies that mine gold. You won’t have direct exposure to the gold market, but it was not expected that the actions of gold miners would tend to be closely related to the price of gold.
One thing to be considered is that gold mining workers tend to experience a reinforcement of gold price movements. This will increase the profits, but also increase the losses. You also have to be careful when investing in companies that are in the exploration phase. While some of them like to be rich, it is unlikely to find many more gold.
Owning physical gold is one way to expand and guard your wealth. There are some downsides though, it’s not as simple or convenient as buying a gold ETF, and it costs money to store. There are also some decisions and quite a bit of research you need to make before purchasing.
It’s ordinarily a lot cheaper than owning physical gold, as there are no storage fees. It’s also simple to buy and sell, and there’s no need to go to a dealer. The big drawback is that you don’t own tangible gold. Additionally, it carries third party risk, which can blow you exposed if they ever went bust. There are a few ETFs in the ASX that give you direct exposure to the gold price.
It is predicted that gold will continue to climb unto the middle of next year, but before you get too excited, most of their current run is finished, so the growth will most likely be approximately 10 per cent or possibly a little more. Having said that, if the stock market falls heavily again, anything is possible.
Although gold does not pay an income and can be volatile, just like the equity market in the short term, it has multiple attributes that support its role in a portfolio. These include the fact gold has generated strong long-term returns, increasing by more than 9 per cent per annum since the start of the 1970s. Gold has also been an excellent hedge against volatility in equity markets. Research shows that no asset has outperformed gold in periods of equity market weakness, helping to bring balance to a portfolio.
Notwithstanding the uncertainty and challenging times this year because of COVID-19, many investors crowded to defensive assets such as gold and silver. This has paid off magnanimously, particularly given that the All Ordinaries Index is falling beyond 10 per cent. Since 1 January 2020, gold is up about 24 per cent.
Any advice provided by Laverne is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.