A Comprehensive Guide To Investing in Gold

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A Comprehensive Guide To Investing in Gold

2012 GoldCore 1
TABLE OF CONTENTS
INTRODUCTION ................................................................................... 2
INVESTING IN PHYSICAL GOLD ......................................................... 5
MODERN BULLION COINS ........................................................................... 6
GOLD BULLION BARS ................................................................................... 7
SEMI-NUMISMATIC AND NUMISMATIC GOLD COINS ............................ 8
GOLD ACCUMULATION PLANS ................................................................ 10
GOLD CERTIFICATES .................................................................................. 11
ALLOCATED ACCOUNTS ........................................................................... 12
DIGITAL GOLD CURRENCY OR E-GOLD .................................................. 12
GOLD BULLION IN PENSIONS ................................................................... 12
INVESTING IN PAPER GOLD ............................................................. 15
EXCHANGE TRADED FUNDS (ETFS) ......................................................... 16
GOLD STOCKS ............................................................................................. 17
GOLD STOCK OPTIONS ............................................................................. 18
PRECIOUS METAL UNIT TRUSTS OR MUTUAL FUNDS ........................ 19
GOLD FUTURES ............................................................................................ 19
GOLD FUTURES OPTIONS .......................................................................... 21
CFDS OR SPREAD BETTING ....................................................................... 21
ASSESSING YOUR OPTIONS ............................................................. 22
INVESTING IN GOLD: CONCLUSION .............................................. 25


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INTRODUCTION
old has been sought after for its unique blend of near
indestructibility, beauty, rarity and because of its status as a means
of exchange and universal currency par excellence for centuries.
Empires and nations have sought to possess gold as a medium of international
exchange, as a store of wealth and in order to increase and preserve power.
Individuals have used gold as a store of wealth and as insurance against the
fluctuations and depreciation of paper money and to protect against other
macroeconomic, systemic, geopolitical and monetary risks.
Throughout history, perhaps no other asset in the world
has had the universal appeal of gold and this appeal has
increased in recent times due to the very significant
macroeconomic, systemic, geopolitical and monetary
risks facing our modern global financial system and
economy.
Successful investing is about the diversification and
management of risk. In layman's terms this means
not having all your eggs in one basket. We know
from history that markets can and do crash and if you
are not properly diversified your nest egg can be
severely affected.

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So a healthy portfolio (see Figure 1) will include a wide range of assets including
a diversified portfolio of equities with exposures to different market sectors and
regions; a portfolio of different countries' bonds; a diversified property portfolio;
a cash component and a 5-20% allocation to gold related investments and gold
bullion. In these uncertain times, it is important to be cautious and risk
conscious and counterparty and systemic risk should be considered.
The key is to determine what amount of each asset class to have and to own
assets that will weather the onslaught of inflation, deflation, stagflation and
even hyperinflation.
Some exposure to gold should be included in all diversified portfolios. A good
rule of thumb would be a minimum allocation of around 10% to gold and
related gold-investments.
SPECULATION
GROWTH
INCOME
SECURITY
FOUNDATION
Options
Futures
Spread Betting
Small Cap Stocks
Large Cap Stocks
Equity Mutual Funds
Blue Chip Stocks
Comm. and Res. Property
Corp. and Gov. Bonds
Cash Deposits
Money Market Funds
Annuities, T-Bills
Gold Bullion
Figure 1: The Investment Pyramid www.GoldCore.com


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One's motivation for buying gold is fundamental to deciding in which form you
should buy it.
Are you a speculator, investor or saver?
Do you wish to take a short term speculative position in gold?
Are you investing for the short, medium or long term?
Or are you diversifying, saving or using gold as a form of financial
insurance?


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Gold is money.
Everything else
is credit.
INVESTING IN PHYSICAL GOLD
hysical gold should form a part of every properly diversified portfolio.
Gold remains a universal finite currency, held by every central bank of
note in the world. And central banks have become net buyers of gold
in recent years and look set to remain net buyers for the
foreseeable future due to their massive foreign
exchange reserves and concerns about the dollar, euro,
pound and all fiat currencies. As JP Morgan famously
said, Gold is money. Everything else is credit.
In the same way that the family home should not be regarded as an
investment, gold bullion is not an investment per se, rather it is money and it is
a form of 'saving for a rainy day' or of financial insurance. It is to be taken
possession of or stored with a secure third party and should not be traded.
One does not trade an insurance policy and thus as a form of savings and
financial insurance, physical gold should not be traded.
Gold is money and is the ultimate safe haven asset and a great way, if not the
best way, of ensuring wealth preservation and for passing wealth from one
generation to the next. Once the solid base or core holding of gold bullion is
achieved in a portfolio then other investments in gold such as mining stocks and
mutual funds and other more speculative gold investments can be considered.

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MODERN BULLION COINS
Modern bullion coins allow investors and store of value buyers to own
physical gold bullion. Bullion is precious metal in its purest form and gold
bullion coins are investment grade (between 0.90 and 0.9999 fineness) legal
tender coins.
The value of bullion coins and bars is determined almost solely by the price of
gold and thus closely matches the spot price of gold as quoted on
international markets.
Gold, silver and platinum are all available in the form of bullion coins, minted
in Australia, the UK, the US, Canada, South Africa, Austria, China and other
countries. The most popular bullion coins in the world are American Eagles
from the US Mint, Australian Kangaroos from the Perth Mint, Sovereigns and
Britannias from the Royal Mint (UK), Maple Leafs from the Royal Mint of
Canada, Philharmonics from the Austrian Mint, Krugerrands from the South
African Mint and Pandas from the People's Republic of China Mint.
Most bullion coins are minted in 1/10 oz, 1/4 oz, 1/2 oz & 1 oz form but some
can be bought in 2 oz, 10 oz & 1 kilo form. However, one ounce gold bullion
coins are by far the most popular for both small investors and high net worth
individuals who see the advantages of owning legal tender bullion
coins, either in their possession or in depositories, and recognise the
advantages of the divisibility afforded by coins.
The British Gold Sovereign, originally the one pound coin, is the most
widely traded and owned gold coin in the world. British gold
sovereigns are becoming increasingly popular again internationally
and especially in the UK. In the UK, this is because they are not


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subject to capital gains tax (CGT). All post-1837 gold sovereigns are legal tender
and have a legal tender face value and thus are capital gains tax free. This is
obviously a significant benefit to UK investors vis--vis other gold investments
and other investment and savings vehicles.
Due to the 'EU Gold Directive,' passed in 2000, buying investment grade gold
bullion for investment or as a store of value is stamp duty free and tax free
(VAT exempt) in the UK and EU and in most jurisdictions internationally.
GOLD BULLION BARS
Gold bullion bars allow investors and store of value buyers to own physical
bullion. Bullion is investment grade gold and gold bars are normally of 0.9999
fineness or 24 karat pure and trade at a small premium to the quoted spot
price of gold.
There is little difference between owning gold bullion coins and smaller gold
bullion bars and it is often a matter of individual preference. It is important to
ensure that you own gold coins or gold bars from a well-known and trusted
mint or refinery. Recently, there has been a slight shift in demand for gold
bars with a laminated tamper-proof display card, with each bar having its
own serial numbers.
The value of bullion bars is, like bullion coins, determined
almost solely by the price of gold and thus closely matches the
spot price of gold.
Larger bars are not generally taken delivery of due to the cost
of insured delivery and the security implications of having very
large amounts of bullion outside the chain of integrity say in
a safety deposit box, in an office or in a private residence.


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A London Good Delivery Bar weighs 400 troy ounces and is quite expensive
400 ounces multiplied by the spot price of gold per ounce. Therefore, for
typical retail investors - it is prohibitive in terms of cost. Thus, London Good
Delivery Bars are normally the preserve of large companies, banks and other
institutions and indeed central banks. High net worth clients tend not to buy
London Good Delivery Bars as they realise the advantage of a divisible gold
holding and being able to sell some of their holdings at different times.
SEMI-NUMISMATIC AND NUMISMATIC
GOLD COINS
Numismatic or older and rare coins are bought not solely for their precious
metal content but also for their rarity and their historical, aesthetic appeal.
Sometimes, they are leveraged to the gold price which means that the price of
these coins may surpass and increase faster than the gold price in a bull
market due to their historical and aesthetic value and to their rarity.
Conversely, they may decrease by more when gold is in a bear market or is
falling in value. Numismatics and semi numismatics can be bought from
numismatic dealers and some bullion dealers with the requisite expertise. One
should always work with established and trusted counter parties. Compare
prices and make sure you are getting value for money.
Rare U.S. gold and silver coins such as $20 Liberties, St. Gaudens,
Peace and Morgan Silver dollars in collectible certified form remain
popular with some investors and collectors. These rare coins are
carefully hand selected by numismatists for their eye appeal and quality
and are certified for grade & authenticity by the PCGS (Professional Coin}
Grading Service) or the NGC (Numismatic Guaranty Corp.)


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Also quite popular are high-quality pre-1933 gold coins graded MS-65 or
better by either the PCGS or the NGC. They are bought by both collectors and
investors and most opt to take possession of these older coins unless they
have invested in significant quantities.
Some gold investors worry about possible government confiscation in the
event of a monetary or systemic crisis. Pre-1933 coins offer an additional layer
of protection against privacy intrusions including gold confiscation.
Numismatic and semi numismatic older gold coins were exempted from the
ban on private gold ownership enacted by the U.S. government in 1933 and
have been treated as collector items ever since. Given the extremely low level
of gold ownership internationally today, we believe confiscation of individual
citizens gold is extremely unlikely. Desperate governments are far more likely
to nationalise large gold mining companies or banks and other institutions
with large depositories of gold. Insured delivery of bullion and numismatics is
usually some 1%-2% of the total value. Insured storage of bullion and
numismatic coins in an allocated account will cost some 1% per annum.
Investors should choose their storage provider carefully, making sure of a high
credit rating and or that their depository is established, respected and trusted
internationally. Given the scandals and financial crises seen in the banking
sector in recent years, there is an increasing preference for storing bullion and
numismatics in mints and specialist depositories.


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GOLD ACCUMULATION PLANS
Recently, gold based savings products have been introduced to meet the
investment needs of people internationally who want to hold physical gold in
their investment portfolios or wish to diversify their savings.
Gold Accumulation Plans (GAPs) are similar to conventional savings plans in
that they are based on the principle of putting aside a fixed sum of money
every month. The fixed sum then buys gold every trading day in that month.

The fixed monthly sums can be small, and purchases are not subject to the
premium normally charged on small bars or coins. Because small amounts of
gold are bought over a long period of time, exposure to short term variations
in price is contained reducing risk for buyers.
GAPs offer customers the unique opportunity to start accumulating physical
gold using a daily average pricing methodology. This helps eliminate the risk
of buying into a speculative bubble.
At any time during the contract term (usually a minimum of a year), or when
the account is closed, investors can get their gold in the form of bullion bars or
coins. Should they choose to sell their gold they can also get cash.

One of the first Gold Accumulation Plans in the western world, GoldSaver was
launched by GoldCore in May 2010. The worlds largest commercial bank,
Industrial and Commercial Bank of China (ICBC) and the World Gold Council
launched the first gold accumulation plan in China. Over one million accounts
had already opened in 2010 alone.
India recently saw the launch of its first gold accumulation plan. The World
Gold Council, the market development organisation for the gold industry,
launched it in conjunction with Reliance Capital.


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Leading financial academics and personal finance experts have endorsed the
concept of saving in gold over the long term and this sector is set to grow in
the coming years.

As with all investments and savings products, the safety of the counter parties
and in particular the safety of the counter party storing the gold in the gold
accumulation plans is very important.
GOLD CERTIFICATES
The Perth Mint Certificate Programme is the only government backed
precious metal certificate programme in the world. It allows investors to
own bullion in unallocated or allocated accounts. The Perth Mint retains its
AAA credit rating from Standard and Poor's and Moody's and is one of the
safest and securest ways to own investment grade gold bullion. There are
no initial or ongoing shipping, insurance, holding or custodial fees and thus
it is one of the most cost effective ways for investors to own bullion over the
long term.
Gold certificates are liquid and can be sold easily soon investors will be
able to buy and sell in real time online. Most investors opt to own their bullion in
unallocated accounts as there are no insurance or holding fees on them and
there is the flexibility of being able to transfer to an allocated account simply by
paying small fabrication fees should the investor deem it necessary. Every gold
bar is audited and accounted for and it is thus considered a safe way to own
bullion. Bullion in a format of your choosing (coins or bars) can be shipped
internationally from an allocated account or from an unallocated account once it
has been converted to allocated.


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ALLOCATED ACCOUNTS
Allocated gold accounts allow an investor to buy gold coins and bars from a
bullion brokerage which will transfer or ship the bullion to an individual's
account in a depository or bank. Allocated accounts involve ownership of
specific gold and the owner has title to the individual coins or bars. Due
diligence should be done on allocated gold account providers and the
history, financial standing, credit rating and security of the provider is of
vital importance.
DIGITAL GOLD CURRENCY OR E-GOLD
Digital Gold Currency, goldgrammes or e-gold are also increasingly popular.
There are no specific financial regulations governing DGC providers, so they
operate under self-regulation. DGC providers are not banks and therefore do
not need to comply with bank regulations and there are concerns that there
are unscrupulous operators operating in this emerging sector.
However, two of the more respected providers who have rightly garnered trust
are Bullion Vault and Gold Money. They offer allocated accounts where gold
can be instantly bought or sold just like any foreign currency. Every gold bar is
audited and accounted for and it is thus considered a safe way to own bullion.
Digital gold is primarily used by clients to buy gold for saving or as an
investment and/ or as electronic money amongst users.
GOLD BULLION IN PENSIONS
Most progressive jurisdictions internationally now allow their citizens to own
gold bullion in a pension. The poor performance of equity markets in recent
years, the poor performance of investment managers and the high costs of


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pensions means that returns in many pension funds internationally have been
very poor. Having an allocation to gold in a portfolio has been shown to both
reduce the volatility of the entire portfolio and also to enhance returns.
An example of a pension fund that has bought gold is the University of Texas
Investment Management Co., the second-largest U.S. academic endowment.
It took delivery of almost $1 billion in gold bullion in 2011 and is storing the
bars in a vault in New York.
Many countries now allow gold bullion to be held in a pension providing it is
with a trusted and secure third party.UK citizens can as of April 2006 invest in
gold bullion through their Self-Invested Personal Pensions (Sipps). US citizens
could already do so in their Individual Retirement Accounts (IRA's).
Some jurisdictions including the UK and Ireland, have introduced new types of
personal pension schemes that hold investments until you retire and start to draw
a pension income. They are designed for people who want to manage their own
fund by investing in asset classes of their choice. Investments made in gold
bullion are topped up in the form of tax relief, meaning individuals can often
claim a significant amount back depending on the income tax band they fall in to.
Gold bullion is allowed in pensions providing it is investment grade gold which
is gold of a purity not less than 995 thousandths or 99.5% pure and which is in
the form of a bar, or of a wafer, of a weight accepted by the bullion markets.
The bullion must be immoveable and stored with a secure third party. It
cannot be taken possession of and used as a "pride in possession" article.
Thus ETFs, some digital gold providers, allocated gold accounts and gold
certificates are all allowed in many pensions today.


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SPECULATION
INVESTMENT
INVESTMENT / SAVING
INSURANCE
Gold Futures/Options
Non Producing Jnr
Exploration
Spread Betting: CFD
Producing Jnr Gold Mines
Producing Gold Mines
Unhedged Gold Mines
ETFs: Gold/Silver
Unallocated Gold Accounts
Digital Gold
Gold Accumulation Plans
Gold Certificates
Allocated Gold Accounts
Gold Bullion In Your
Possession
Figure 2: The Gold Investment Pyramid www.GoldCore.com


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INVESTING IN PAPER GOLD
nvesting in paper gold is very different to and more high risk than
investing in physical gold.
Paper gold includes gold futures, gold futures options, some gold ETFs,
certain forms of unallocated gold ownership, pool accounts, contracts for
difference (CFDs), spread betting contracts, gold stocks and or gold options
(see Figure 2).
Gold mining and mineral exploration and the processes used to mine and
produce metals are highly technical. Investors in gold production and
exploration company stocks need to equip themselves with a basic
understanding of the industry, in order to identify possible pitfalls and the
risk-reward relationships of entering this investment sector. Investors should
generally not buy just one or two stocks, but rather a basket of unhedged
stocks or a mutual fund.

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Derivatives, such as forwards, futures, options, spread betting and CFDs are
normally short term speculations on the future price of gold and other markets
such as commodities, shares or bonds, interest rates, exchange rates, or indices.
They are financial instruments which derive their value from or whose price is
dependent on the underlying asset. One does not directly own the underlying
asset and one does not have a right to take possession of the underlying asset.
Leverage or borrowing substantially may increase investment gains but also
increases risk as if the price goes against the purchaser they may be subject to
a margin call. There is significant leverage involved with derivatives and they
are thus considered risky for non-professionals as the potential positive or
negative outcome is greatly magnified.
EXCHANGE TRADED FUNDS (ETFS)
Gold exchange-traded products are exchange-traded funds (ETFs),
closed-end funds (CEFs) and exchange-traded notes (ETNs) are recently
launched financial products that aim to track the price of gold. Gold
exchange-traded products are traded on the major stock exchanges including
Zurich, Mumbai, London, Paris and New York.
Each gold ETF, ETN, and CEF has a different structure outlined in its
prospectus. Some such instruments do not necessarily hold physical gold. For
example, gold ETNs generally track the price of gold using derivatives.
Some of the more popular ETFs are the Streettracks Gold Shares (NYSE: GLD)
and in London the Lyxor Gold Bullion Securities (LSE: GBS). With both of these
ETFs and indeed with most ETFs, one does not own the physical gold bullion
rather one owns shares in a trust that owns gold.


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One is therefore exposed to the trustees, the custodians and the
sub-custodians. The prospectuses of many of the ETFs have many serious
indemnifications with regard to the standard and the purity of the gold meant
to be held in the exchange traded fund. These many indemnifications are
important as it means that these ETFs carry additional risks and are not the
same as owning actual physical gold.
Therefore, many of the ETFs are more akin to derivatives that track the price of
gold than actual physical bullion.
Typically a commission of 0.4% is charged for trading in gold ETFs and an
annual storage or administration fee of 0.4% is charged. Thus every year the
amount of gold or silver backing an ETF share shrinks by that amount. This
makes them unattractive as a medium or long term way to invest in gold. They
are akin to derivative contracts that track the gold price and one does not own
or have title to the underlying asset.
ETFs are more suitable for trading and for use by day traders, hedge funds
and institutional players going long and short and speculating on short term
movements in the gold price.
GOLD STOCKS
Gold stocks are not gold rather they are shares in gold mining companies. If
the gold price rises, profits of a gold mining company should rise and as a
result the share price should rise. There are many factors to take into account
and it is not always the case that a share price will rise when the gold price
increases. It is important to consider the performance and abilities of the
management, auditors and geologists; the conduct of trade unions; a
company's gold hedging position; whether it is producing or exploring; its


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cost basis; how much reserves it has in the ground and whether it is subject to
political, economic, nationalisation or environmental risk.
Individual gold shares would be regarded as very volatile and high risk. Gold
shares are regarded as more speculative as there is a higher risk-reward
scenario. However, the added risk can be compensated for by the leverage
which can result in higher returns. Such higher returns would be expected from
mid and large-capitalisation un-hedged senior gold mining companies with
proven reserves and strong earnings which have strong balance sheets and
growth in resources and production and effective company management.
GOLD STOCK OPTIONS
Stock options are a contract between two parties that expires at an
agreed-upon time in the future. The contract purchaser is buying the right, but
not the obligation, to buy a gold mining stock (a 'call' option) or sell (a 'put'
option) a gold mining stock (the 'underlying') at a specific price, on or before
the agreed-upon date, the date of expiration.
Stock options allow for a lot of leverage as a trader can control a large stock
position with only a small outlay. However due to the very short term of the
option contracts, they can expire worthless with the entire outlay being lost.
Stock options allow speculators to make bets on market movement without
having to pick an up or down direction. Because of this, stock options traders
are often said to be trading volatility rather than price.


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PRECIOUS METAL UNIT TRUSTS OR
MUTUAL FUNDS
Instead of personally selecting individual shares, some investors spread their
risk by investing in collective investment vehicles specialising in investing in
the shares of gold mining companies. These include mutual funds,
open-ended investment companies (OEICs), closed-end funds, unit trusts. Two
of these funds are the UK-based Blackrock Gold & General Fund and the
Canadian Sprott Gold & Precious Minerals Fund by Sprott Asset Management.
There are many precious metal funds in the US but investors assume US dollar
currency risk when buying them.
Collective investment vehicles are a good way to invest in the precious metal
mining sector as an investor's risk is reduced; mutual funds are not dependent
on the performance and profits of one or two individual gold mining company
and specialists in the field choose a portfolio of gold mining companies.
GOLD FUTURES
Gold futures are traded on exchanges in London, Tokyo, Sydney, Singapore,
at the New York Mercantile Comex Exchange (COMEX), the New York
Mercantile Exchange (NYMEX) and at the precious metals department of the
Chicago Board of Trade (CBOT).
Gold futures contracts are firm commitments to make or take delivery of a
specified quantity and quality of gold on a prescribed date at an agreed price.
Investors may take or make delivery of the gold underlying the contract on its
maturity although, in practice, that is unusual. A benefit for some is that such
contracts are traded on margin, so that only a fraction of the value of the
contract has to be paid up front. As a result an investment in a futures


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contract, whether from the long or the short side, tends to be highly geared to
the price of gold and consequently more volatile.
They are normally the preserve of some mining companies, speculators,
hedge funds and institutions. The leverage makes them a high risk to high
reward speculation. Participants are either hedging the gold price or
attempting to predict whether the value of gold will rise or fall in the short
term. Gold futures contracts are valuable trading tools for commercial
producers and users of the metal to hedge their price risk.
Success depends on the price movement of gold during the contract term.
Traders in these markets without protective stop-losses can quickly find
themselves on the wrong side of a fast moving trade, losing large sums of
money. Part of the risk is due to the leverage involved which can result in a
speculator losing more than their initial capital outlay. Therefore, futures
markets are not for amateurs or novice investors.


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GOLD FUTURES OPTIONS
All the bullion banks trade in gold options and a list of bullion banks is
available from the London Bullion Market Association (LBMA). Another way of
trading options is through the COMEX Division of the New York Mercantile
Exchange. The third route would be to contact a futures broker. They are often
used to contain risk in the trading of futures.
CFDS OR SPREAD BETTING
Leveraged exposure to precious metals can also be got from CFDs and from
spread betting. Rather than actually buying physical gold bullion, both
financial products allow a trader to make a 'bet' or a 'contract' based on the
price of the underlying security or asset itself. This allows traders to profit from
both upward and downward movements in price.
Both products are also margin products, which means traders gain leverage or
gearing on their trades and only have to put up a fraction of the full deal,
enabling you to make or lose a lot more money.
No commissions or taxes are levied in most jurisdictions on spread betting and
CFDs. The advantages are that any gains are CGT free and one can also take a
view on movements in either direction. The downside is that in a spread bet
the spread can be high, your exposure is geared up and short term bets are
risky as it is extremely difficult to forecast any markets short term movement.
One can lose more than the initial capital thus they are for speculators with
very short term horizons rather than investors.


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ASSESSING YOUR OPTIONS
ne's motivation for investing in gold is fundamental to deciding
how to invest. Are you a speculator, investor or saver? Do you
wish to take a short term speculative position in gold? Are you
investing for the short, medium or long term? Or are you diversifying;
saving or using gold as a form of financial insurance?
When assessing one's gold investment options one must decide what one's
motivation is. Once this is done, the primary considerations which should be
looked at are the costs (both upfront and possibly recurring annual fees),
proximity to your asset and perhaps most importantly today counter party risk.
In the table below we have looked at the various vehicles for accessing the
gold market and graded them with regard to cost, ability to take delivery and,
most importantly, proximity to your gold and counter party risk.

Initial
Cost
Recurring
Cost
Counter
party risks
Proximity
Investor
suitability
Physical
delivery?

Gold
certificates
Med None Low Good Diversifier Yes Consider solvency &
credit rating. A
sovereign AAA
credit rating and
govt. guarantee is
best.
Bullion
bars/coins
delivered
Med None Low Very
good
Diversifier Yes Use safety deposit
boxes, home or
office safes, and
insurance.
O


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Initial
Cost
Recurring
Cost
Counter
party risks
Proximity
Investor
suitability
Physical
delivery?

Bullion
bars/coins
stored
Med Med Low Good Diversifier Yes Consider the
solvency and credit
rating of the
depository. Safety
and security are key.
Gold bullion
in SIPPS
Low Low Low Good Diversifier No Make sure you get
impartial fee-based
asset allocation
advice.
Semi
numismatics
High Low Low Good Diversifier/
Speculator
Yes Premiums can vary.
Get reputable and
professional advice
before purchasing.
Digital gold Low Low Med Med Diversifier/
Speculator
Some do Concerns over
dependence on
technology
(internet, website,
servers, etc.) which
is attendant risks.
Exchange
traded funds
Low High Med Poor Speculator Yes (large
minimum)
Suitable for
speculators, own
shares in a trust and
not gold. Annual
costs quite high at
0.5% per year.
Precious
metal unit
trusts

Med High Med Poor Diversifier/
Speculator

No High annual
charges
(funds can have
hidden charges).
Analyse the
prospectus fully.


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Initial
Cost
Recurring
Cost
Counter
party risks
Proximity
Investor
suitability
Physical
delivery?

Gold stocks Low Low High Poor Speculator No Very volatile.
Management,
geologist, auditor,
trade union,
environmental and
nationalisation risk.
Seek advice.
Gold futures Low Med High Poor Speculator Yes Only suitable for
speculators. High
risk, involving
leverage. Seek
advice.
Spread
betting
Med Med High Poor Speculator No Only suitable for
speculators. High
risk, involving
leverage. Need to
monitor trading
constantly. Seek
advice.

In an age of significant systemic risk, proximity to the underlying asset is
increasingly important. Investors are increasingly wary of having too many
counter parties (brokerages, banks, trustees, custodians, sub-custodians,
delegates of sub-custodians etc.) between them and their asset. If storing gold
with a third party, it is important that you have a direct relationship with that
counterparty and there is not significant intermediation and thus increased
risk. Another consideration is the ability to take delivery of gold in the event of
a monetary or systemic crisis. The World Gold Council is a good resource for
investors looking for established and reputable providers of gold related
investments in the UK and internationally.


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INVESTING IN GOLD: CONCLUSION
s we have seen, there are major differences in the various motivations
for buying gold and ways to buy gold from trading and speculating
to investing and saving.
Holding precious metals in a portfolio can provide distinct benefits in the form
of speculative gains, investment gains, hedging against macroeconomic and
geopolitical risk and or wealth preservation.
Traditional asset allocation theory, as represented by the investment pyramid,
advocates higher risk speculations at the top, with lower risk assets at the
bottom. Commodity futures contracts, options and exploration junior mining
companies should be placed at the top of the pyramid, while cash equivalents
and fully allocated or taken delivery of physical bullion should form the
foundation or base.
Experienced and knowledgeable investors have long known that gold and
gold related investments can be solid investment choices. Gold is stable in
times of global geopolitical instability and when there is economic uncertainty,
recessions and depressions. It is important that investors look at their
portfolios holistically. Used
correctly, gold and gold
related investments
can be highly effective
components of a properly
diversified investment portfolio.

A


2012 GoldCore 26

WRITTEN BY
Mark O'Byrne, Research Director at GoldCore.
ABOUT GOLDCORE
GoldCore are respected international bullion dealers who are experts in the execution and logistics of
the highly specialised precious metals market.
GoldCore have been providing precious metal investment solutions for an International client base since
2003. Today, our team of experts service all investor classes from private individuals to companies and
institutional investors. Whether you are a small or large investor looking to take delivery or arrange for
secure, trusted insured storage, GoldCore has a solution to suit your needs.
CONTACT GOLDCORE

Disclaimer: The information in this document has been obtained from sources which we believe to be reliable. We
cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any
investment. Any person acting on the information contained in this document does so at their own risk.
Recommendations in this document may not be suitable for all investors. Individual circumstances should be
considered before a decision to invest is taken. Investors should note the following: Past experience is not
necessarily a guide to future performance. The value of investments may fall or rise against investors' interests.
Income levels from investments may fluctuate. GoldCore Limited ( www.goldcore.com), trading as GoldCore is
regulated by the Financial Regulator of Ireland.
2013 GoldCore. All rights reserved.
USA
USA Phone
+1 302 635 1160

England
No. 1 Cornhill
London EC3V 3ND
England

UK Phone
+44 (0) 203 086 9200

UK Fax
+44 (0) 203 031 1046

Ireland
GoldCore Ltd
14 Fitzwilliam Square
Dublin 2
Ireland

Low Call Ireland
1 850 GOLD IE

Ireland Phone
+353 1 632 5010

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