Have you ever wondered how to protect your wealth considering gold or silver investment? If so, you are on the right track. The last 4 years of financial crisis around the world have been quite turbulent.
Many governments across the world are virtually printing and creating money out of the thin air. Such behavior will sooner or later lead to an inflation. This hasn’t happened yet, but it’s only because at the same time the recession is restricting demand and thus the pressures on price increases are week at the moment.
However, as soon as the economy starts to pick up some steam, the excessive money supply will ultimately lead to inflation.
New Zealand is not heavily involved in money printing, however, the inflation risk is as real here as elsewhere in the word. We are not an isolated island in the world economy and still largely depend in many areas on overseas imports.
This is most apparent in commodities like oil, consumer goods and many staple food, for example wheat or other grains used to prepare the most basic food – bread. So, when the inflation in foreign countries starts, it will be imported to New Zealand as well.
In the last couple of years we have witnessed huge rise in commodity prices, including gold or silver. Few analysts will say that the price of gold is yet another bubble to burst. However, we do not think so.
We believe that there is still huge potential for the price of gold and silver to go. Another very good reason for gold investments is the fact that other asset classes like shares or bond are getting extremely risky. We have all seen what happened in 2008 on stock exchanges around the world. In the matter of weeks often several years of accumulated value was simply wiped out.
To avoid this happening to your own money it wise to consider investing into some real assets which over the century proved to be the best investment vehicles for wealth protection.
Well, if you have made your decision about gold or silver investment, the next question is how do I proceed?
What kind of precious metals and in what form should I buy?
Is gold jewelry a good option? Well it may be in some countries, but definitely not in New Zealand. The problem with jewelry in New Zealand is that they sell here low carat gold, usually 9, 10 or at most 18 carats.
Also, the final price of any jewelry is several times the value of its gold content. So, for example if you buy an item for $1,000 then the value of gold in it may be as low as $200-$300. In New Zealand you pay for your jeweler labour (and profit) several times more than for gold itself.
Next, if you needed to sell your gold, for the same item you may get as low as $100. Again you need to pay a lot of profit to those who are purchasing gold from the public. You may see these guys in almost every shopping centre. Their purchase gold prices are so bad that even if you need to sell some gold, never sell to these guys to avoid getting peanuts for your valuables.
Purchasing investment gold in the form of jewelry is possible only in countries like Turkey, India or Thailand.
For example in Thailand they sell standard jewelry as 23 carat gold (96.5% pure gold). You usually pay 5-10% margin on top of its gold content. Also, if you need to resell, they give you 5-10% less than the gold content of the jewelry item.
The 10-20% margin between selling and purchasing price there is much more reasonable compared to ludicrous 800-1000% margin in New Zealand. If price of gold goes up let’s say 30%, you can make a profit. Try making any profit with gold jewelry in New Zealand!
Although we believe that the gold has a great potential to grow, we are almost certainly that it will not grow by 1000% any time soon (at least not in this or the next century).
If you are planning holiday in any Asian country where they sell high carat gold, you may consider buying some jewelry there and bring it back to New Zealand. But be careful where you do your purchases over there. Prefer local reputable stores.
You may also consider taking some local tour guide with you to avoid being ripped -off by some unscrupulous merchant praying on unaware tourists.
What then are the other options you have in New Zealand?
The only viable option here is buying either gold coins or bullion which are 99.99% pure gold. They are also exempt from paying GST. With normal jewelry here you have to pay additional 15% GST which will even further degrade your investment value.
Coins and bullion are considered valuables, not products or services, so the GST does not apply to them. There are several companies who sell gold and silver coins and bullion. You can easily find them using Google or other search engines. But also, be a bit careful, you may have heard recently about one of these types of companies going down and owing its customer millions of dollars.
Therefore, choose your investment gold seller carefully, prefer merchants that are long established and reputable.
Some companies may be offering gold certificates instead of physical gold. Be more carefull about these.
Would you like to have in your possession certificates and live in fear what will happen if the company which issued them stops trading, goes bankrupt or suddenly disappears? I wouldn’t. Therefore, when it comes to investing in gold or silver, always go for physical precious metals, no certificates, warrants or other types of papers.
Which is better – gold or silver?
The last question you may have when thinking about investing in precious metals is whether to buy gold or silver? Our advise is go for 70% gold and 30% silver (reasonable ratios are also anything between 50:50 and 90:10). The gold should be your primary focus.
Because it’s higher in value, it won’t take a lot of space (and weight) to store it. If you buy silver, you may run into problems where to securely keep it. For gold you can rent security boxes in banks.
For considerable amount of silver you would need several such security boxes or a special arrangement with your bank to keep it in their main safes. This would increase the storage cost. The gold is therefore far better option.
However, despite the disadvantages of silver you should still consider to buy some. The reason is simple – if you need to sell a little, it’s easier to do it with silver. Let’s say you need extra $100. To get it, you simply sell one or two silver coins. If you sell one gold coin, you get $2,000 and you may not need all of it. To put it simply – gold should be your main nest egg, silver will play a role of small change if you need some.
What do you think about this article? Have you got your own experience with investing in precious metal or would like to share your opinion? If so, we would love to hear your comments!