Gold as a long term investment instrument has been unrivaled ever since it was discovered. Whatever you compare it to – currency, fixed property, stocks, or pretty much any other asset out there – gold is definitely going to outpace all of them over the long term. Market Leader interviewed Leonid Matveev, CEO of Alpari Gold Investment Company.
Market Leader: Gold has been popular for millennia. Has anything changed over the period?
Leonid Matveev: Yes, it has. Gold has become even more popular. The thing is that gold is growing in price after taking a break from time to time. These days, gold is still a popular investment for risk-averse investors amid increasing demand for it and scarce gold reserves. Simply put, everyone needs gold while there isn’t enough of gold for everyone. To be honest, gold is purchased by hundreds of central banks and commercial financial institutions around the globe, not to mention millions of retail buyers purchasing gold as a safe-haven asset.
Market Leader: Why is buying gold better than storing your capital in cash, bank deposits, stocks, bonds, or fixed property? Is gold really more profitable?
Leonid Matveev: The thing is that today none of the mentioned assets are reliable investments. Amid global financial uncertainty and instability, gold is one of the very few safe-have assets capable of saving your capital from inflation and major risks.
As for profitability, over the last 10 years, gold has appreciated by 160% in USD and 480% in RUB. Since late 2015, gold has gained over 27% from nearly $1000/oz to well above $1300/oz. Yet, this is just the beginning. Alpari Gold and other experts assume that gold is going to cost more than $1500/oz in 2017.
By the way, buying gold is a decent way to insure against currency exchange risks. For example, in Russia, gold is traded for rubles but the international price is in dollars. That said, if you, say buy gold for 60 rub per dollar and over a couple of days, USDRUB reaches 65 rub per dollar, you will gain some profit even if the price of gold stays unchanged over the period.
Market Leader: Do you men gold has never dropped in price?
Leonid Matveev: Well, gold has always been up and down in price. This happens because someone is constantly buying and selling gold around the globe. The price depends on the balance of supply and demand. The more people buy gold, the higher the prices go. Amid financial instability more and more market players start buying gold eventually. This means that higher gold prices is just a matter of time. Gold is a long-term investment. Be sure that when investing in gold, you are never going to lose money in the long run. You cannot think of a reason to make gold depreciated all the way down to zero all of a sudden.
Market Leader: What is the best form of gold to buy?
Leonid Matveev: Well, this is a very important question! Even though choosing the form of gold to invest in depends on your personal preferences and goals, you should always keep in mind on which conditions you will be able to sell it back. Most people believe that buying jewelry is the best and simplest way to invest in gold. That not the case, and here is why:
The best option to invest in gold is to buy fine gold , which is 999, and at a price close to the spot one. The closer, the better. When it comes to the best ways of doing so, most people think that jewelry is the simples and best one. That’s a delusion. To start with, you can rarely find fine gold in jewelry. To be more specific, you often buy 585 or 750 gold instead of 999.
Secondly, you pay the jewelers for their work. The fee is included in the price, which can reach as much as 50% of the price. By the way, that’s why you are offered a significantly less amount of money for the same jewelry if you want to sell it.
This leads us to believe that investing in jewelry is not the best idea. There are cheaper, more professional, and consequently less widespread alternatives. Some of them are gold bullions and coins.
When asked about the peculiarities of investing in bullions and coins, this is what Mr. Matveev responded:
Both gold bullions and coins are made of fine gold 999.Both of them have bind and ask prices. This means that you can freely buy and sell them with banks and licensed private institutions at the corresponding market price. Basically, this is all that gold bullions and coins have in common.
Gold bullions have extra expenses, which makes gold coins a better investment. The thing is that bullions are taxable (for example, In Russia, the VAT is 18%). Secondly, the spread between the bid and ask prices on gold bullion is considerable, which means when you are going to be offered significantly less than you paid when buying the bullion. To be more specific, the spread my go up to 10% of the cost.
When it comes to gold coins, their cost is very close to the spot price of gold. Usually the difference varies from 4% to 8%. At the same time, coins are relatively small in size and therefore are more convenient to store. On top of that, they are light and therefore are affordable to almost anyone. This is a very important thing since few people can actually spare thousands of dollars to buy a gold bullion. And finally the spread between the bid and ask price is way tighter – 2%.
