Invest in Gold

Why invest in gold?

You may consider investing a portion of your investment portfolio in gold. Gold offers a number of advantages compared to other asset classes:

  • Since the very beginning of history, gold has been used as money or as security for money.
  • Investing in gold gives you another option for diversifying your portfolio, alongside shares, bonds and real estate, for example. In the past when the equity markets have fallen sharply, the price of gold has fallen less drastically or has even risen in some cases.
  • Gold has attractive fundamental characteristics: Demand for gold has been increasing for years, while the annual supply remains stable.

Of course, there is no guarantee that Gold will keep this role in the future.

Breakout of the gold price in 2019

Bull markets can be classified as either secular (long-term) or cyclical (bull phases in an overall bear market). Before the June 2019 breakout of $1,400 per ounce, technical analyses indicated that gold was in a cyclical market. A longer, sustained rally is now likely – perhaps similar to the secular gold bull market of 2001 to 2008.

Gold price breakout in 2019
Source: VanEck, Bloomberg. Data as of 8 January 2021.

How can I invest in gold?

How can I invest in gold?

You can invest in gold in the following ways:

  • Bullion or gold coins represent a gold purchase in physical form. Your gold investment is tangible, but more costs are also incurred.
  • Gold certificates are debt securities that track the price of gold and are usually issued by large investment banks.
  • Similar to certificates, gold ETCs are also indefinite debt securities that reflect the performance of the gold price. In Germany, there are no gold-only ETFs that invest directly in gold. Due to legal requirements imposed by the European Union, it is not possible for an ETF to invest in a single commodity.
  • Gold mining shares give investors the opportunity to invest directly in gold mining companies and therefore become a shareholder in a company that is involved in the production or mining of gold. Gold mining ETFs give the opportunity to invest in a basket of gold mining shares.

Overview of the advantages and disadvantages of various gold investment products

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  Advantages Disadvantages
Bullion and gold coins
  • Tangible asset
  • Crisis currency
  • Easy to understand
  • High buying rates
  • No interest/dividends
  • Expensive storage
  • Possible theft
  • Minimum amount
Gold certificates
  • No physical storage requirements
  • No direct ownership
  • No interest/dividends
  • High fees
Gold ETCs
  • No physical storage requirements
  • Extremely liquid
  • No interest/dividends
Gold mining shares
  • No physical storage requirements
  • High upside potential
  • Dividends
  • Extremely liquid
  • High price fluctuations
  • Equity risk
  • Equity analysis required
Gold mining ETFs
  • No physical storage requirements
  • High upside potential
  • Dividends
  • Extremely liquid
  • High price fluctuations
  • Equity risk

Investing in gold according to your own time frame

The different gold investment options also vary in terms of time frame, liquidity and their suitability for certain types of investor.

Investing in gold according to your own time frame
Source: VanEck.

Investing in gold with gold mining shares

Mining shares from companies like Newmont Corp or Barrick Gold Corp are an indirect way of profiting from developments in the gold price. Their prices usually correlate with the price of gold. They also offer the following benefits:

  • You avoid the storage costs of bullion. These costs can be considerable with respect to the necessary security measures.
  • Gold mining companies can pay dividends, which can influence your yield on investment. In the case of bullion, the yield is derived solely from the price gain (or price loss). Needless to say, a price gain cannot be guaranteed.
  • Gold mine shares may increase in value without the gold price increasing. This may occur, for instance, if the company carries out operational improvements that improve profitability. Note: the value can also decrease due to unsound management.

Historically, the share prices of gold miners have increased disproportionately when gold prices increase. The reason is that their profitability increases disproportionately if revenue increases while costs remain the same. Conversely, the opposite is also true: When gold prices drop, the share prices may drop disproportionately.

Risk factors when investing in gold mining shares

Investing in gold miners is subject to a number of specific risks. The most important one is sensitivity to the price of gold. Additionally, there is the risk of investing in the natural resources sector: companies can be negatively affected by numerous factors, such as political and economic circumstances, exchange rate fluctuations, import restrictions, and exhaustion of natural resources.

How do I invest in gold miners?

If you want to broadly invest in gold mining shares, you can turn to gold mining ETFs. This instrument eliminates the need to search for promising individual shares and allows investors to buy across the entire sector on a broadly diversified basis. VanEck offers two gold mining ETFs that invest in shares of gold mining companies:

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