The golden it is an asset that does not generate interest, therefore it tends to prosper when there are no other traditional investments that offer certain attractive returns. If US inflation remains high, the metal may benefit.
I’m going to tell you three ways to buy gold: physical gold, through ETFs and through futures I tell you in advance that, although it may sound complex, the most efficient way to buy gold is through futures, since it has some very important advantages. But let’s move on to the alternatives:
Definitely, this is the least practical way to buy gold. I dare to say that the worst. To begin with, it is very important to know who you are buying from and to obtain a certificate. Why? Because unless one is an expert, it is very easy to be deceived about the purity of gold.
It is very complex to store gold in your home. And whoever wants to pay the cost of custody should think that they will charge between 1% and 2% of the value. But the really bad news is that the gap in the bid-ask price of physical gold is at least 20%.
If you have gold bars in custody at an international bank, you probably won’t have to deal with such a wide gap, but it can be significant nonetheless. What if I buy it abroad? Without a doubt, we found extends much more competitive, although they are still broad compared to the rest of the financial assets.
An ETF (Exchange Traded Fund) is a Fund that is Traded on the Stock Exchange and is bought and sold like any stock. Buying a gold ETF is easy. You just have to have an investment account and buy it like any stock. If someone has an account in a broker in Argentina that offers the service of buying US stocks, they can perfectly buy a gold ETF.
The best known ETF is the SPDR Gold Shares, whose symbol (ticker) is GLD. What this fund does is invest in physical gold. When someone buys GLD shares, they are not directly buying gold; what you buy are shares of the fund (that is, you become the owner of a portion of the fund) which in turn invests in physical gold.
The great advantage of buying a gold ETF is that it is extremely easy and you do not have to worry about storage, which is taken care of by the fund itself. But what problems do you have? First, we are not buying gold directly, but rather we are buying shares of a fund which in turn invests in gold. This may seem like an irrelevant piece of information, but in certain circumstances it is not. If the fund is dissolved or if some of the entities involved in its administration go bankrupt, it can be a problem. In addition, the fund has a cost of 0.40% per year. It is low but it is not zero. And lastly, the retail investor cannot exchange his shares for gold.
This is the way to invest in gold that I like the most. But you have to make sure you understand very well what a future is. A future is a contract by which a party agrees to buy a certain quantity of a good in a future term at a certain price. Each contract has its specifications. The first thing you have to know is that when you buy a future you do not have to pay the amount of the contract at that time. You only have to provide a guarantee that is generally between 10 and 20% of the contract price. This means that it is possible to trade futures with a high leverage, since for example with 20,000 dollars you could take exposure in gold for 200,000, if the margin is 10%.
The advantages of buying gold futures are as follows:
- Removed gold custody issue
- lower costs
- Efficient use of cash
- Exposure can be increased
A good way to follow the price of gold is through Investing or Tradingview. There you can analyze if it is a good time to buy or not. Much will depend on what happens with inflation in the US and the interest rate.
To finish, I want to invite you to download a report with all the variables you need to know to understand the price of the dollar in Argentina. I really recommend it to you. You can download it at this link.
*Miguel Boggiano is an economist and CEO of Carta Financiera.