Gold has been used a form of money for over 5,000 years, from as early as the Egyptian Empire and probably earlier.
There are many reasons why humans gravitated towards gold as a form of money and wealth:
- It does not corrode like other heavy metals (copper, lead, iron).
- It is heavy and dense, making it less fragile than other non corrosive metals (like aluminum).
- It is rare enough to be valuable, but common enough that it can circulate in a society (unlike platinum or palladium).
- It can be melted easily over a flame, meaning it can be easily minted into coins and jewellery.
- It has a deeper shine and glow than other metals.
All of these characteristics are unique to gold which make it an ideal candidate for "money" or an exchange of value.
There came a time in history where instead of swapping carts full of apples or herds of cows to pay for things, people simply used gold coins, which was far more practical and allowed for trade to flourish.
While money later evolved into "gold-backed" paper notes, and later (today) "government-backed" paper notes, gold is still considered a precious metal that holds a monetary value in society.
Advantages of gold today
- It is not controlled by any one government or nation.
- It is globally recognised as a precious metal.
- It has true scarcity (must be mined, cannot be printed)
- Its value cannot be easily inflated away (as supply is not easily increased)
- It has industrial uses (in electronics and jewellery).
Disadvantages of gold today
- It is difficult to store safely.
- Counterfeiting is a problem.
- It is expensive to move large amounts due to weight and security.
- It is difficult to transact with because it is not easily divisible into small amounts.
Why People Invest In Gold Today
Gold is still a very popular investment today. Most governments have gold reserves, and many hedge funds and billionaires have positions in gold.
The main reason people invest in gold today is to hedge against inflation.
Because money can be printed on demand, its value can be inflated away very quickly.
Whenever more money is printed, dollar become weaker, so the dollar value of gold (usually) rises.
Because gold cannot be printed, it is an ideal hedge against this.
Gold is also popular because it is not tied to any one country.
Many people have seen their currencies become worthless overnight throughout history (Ecuador, Zimbabwe, Venezuela etc), so holding your wealth in a national currency can be seen as unsafe.
The British Pound is the oldest surviving currency, which has been around for approximately 1,200 years, but in that time, hundreds of other national currencies have collapsed and become worthless.
Many economists predict that even the USD will collapse at some point in the future. Of course none of us can guess when - it could be 100 or 1,000 years from now - but statistically it is likely to happen at some point.
Especially for people in countries where the national currency is weak and unstable, gold can feel like a much safer way to store their wealth.
Types Of Gold (And How To Invest In Them)
As a gold investor you have many options for buying gold and you should understand all of them.
Owning gold opens you up to various risks and responsibilities, and this changes depending on each type.
Physical gold refers to real pieces of gold that you can touch.
Investors who buy physical gold usually buy it in the form of gold bars or gold coins.
There are many things to think about when owning physical gold, such as how to verify it's real, how to store it safely and how to sell it safely.
Are You Sure The Gold Is Real?
There are cases of people tampering with gold bars, such as hollowing them out and filling them with metals of a similar weight like tungsten and copper.
If you are buying physical gold, you should have the expertise to know what real gold looks like and how to verify it.
Moreover, bars or coins are usually imprinted by whoever minted them.
For example, this is a 1kg gold bar from the Perth Mint:
It's possible this could indeed be real gold, but has been falsely stamped to increase its value.
Knowing how to spot genuine gold is not something you can learn from a blog post. You will need real life experience in dealing with gold, touching it, smelling it, weighing and examining it, and ideally even melting it down and working with it.
As most people do not have this experience, the next best thing you can do is to only purchase your gold from a reliable gold dealer with a guarantee. Obviously, this requires an element of trust, but NZ has several gold dealers with good reputations.
However, because of this risk - buying physical gold in large amounts is not ideal for most investors.
Where To Buy Physical Gold
The safest place to buy physical gold in New Zealand is directly from the mint.
There are several places that mint gold in NZ/AU:
The NZ Mint is a producer of gold coins in New Zealand, including the well-known Gold Kiwi coin:
Note: The NZ Mint is not a government mint, it is a private company in the business of selling gold.
They are also an authorised distributor of the Perth Mint.
You can buy directly from their website.
NZ Gold Merchants
NZ Gold Merchants mints their own gold bars under the brand NZPure.
They are also authorised resellers of gold from ABC (Australian Bullion Company)
You can order directly from their website.
MyGold mints their own gold bars under the brand MyGold.
They are also authorised resellers for the Perth Mint.
You can order directly from their website.
Note that while the above sellers are authorised resellers of some brands (and will also deal in many other brands), buying directly from the mint is always preferable. However, when buying from an overseas mint (such as the Perth Mint) you may have issues when your gold comes through customs. It is easier to buy via an NZ distributor like those listed above, but it is up to your discretion whether you are happy to trust buying your gold from a reseller/third party and in what amount.
How To Store Physical Gold
Storing physical gold is not a simple process and involves planning costs.
If you decide to store the gold yourself, either in your residence or a place of business, there are obvious security concerns and costs involved.
You will need a safe or vault, and insuring it can be difficult.
Therefore, most gold investors choose to give this responsibility to a third party, such as a gold bullion dealer or a safety deposit vault.
All the gold bullion dealers mentioned above offer storage services, usually for a fee of around 1% per annum.
However, these services simply give you a gold allocation from their storage vault, rather than your own private box which you have authority over.
If you wish to have 24/7 access to your gold with full authority, you will need a private safety deposit box.
Some established services for this in New Zealand are:
With these services, you will have your own personalised deposit box with your own private key, meaning only you can ever access it, and you can store whatever you wish inside. The price will depend on the size of the box you choose, however, you can expect to pay around $200 - $500 per year for a standard small box.
How To Sell Your Physical Gold
The easiest way to sell your physical gold is to sell it back to the gold dealer.
NZ Mint, GoGold, NZ Gold Merchants and Regal all buy bullion.
It pays to shop around (on the phone is fine) to see who might offer you the best price.
If you need to transport your gold from your home or from your vault to the dealer's location, remember it's best to do it in daylight and to not do it alone (always have someone with you).
Of course, there are many other options for selling gold in NZ, such as jewellers, pawn shops, private buyers and even Trademe. In general you will find it hard to get a significantly higher price than what an established gold dealer will give you, but again, it can pay to shop around.
However, be aware that you want to be cautious about who you deal with. People simply knowing you own gold is already a security risk. Gold is not a traceable item and the market is not regulated in the same way as stocks or real estate. Dealing with reputable dealers is generally the safest option.
A gold ETF is a fund that owns gold which trades on the share market.
A good example is the Perth Mint Gold ETF (ASX:PMGOLD).
The fund is adminstered by the Perth Mint, and each share in the ETF is fully backed by gold store at the Perth Mint.
At any time, share holders can make a claim to convert their stock into gold bars (as you own the gold in the fund!)
Like every ETF, it has a management fee which is 0.15% p.a.
There are many gold ETFs listed on markets all over the world.
It is up to you to research each one and understand what you are truly buying.
Does the fund actually own gold? Where is it held? Do you have a claim to it? Who has custody?
Buying a gold ETF is convenient, but opens you up to third-party risk which you must be educated on. Essentially you are paying a fee for someone else to buy and store gold safely on your behalf.
How To Buy A Gold ETF
Gold ETFs are purchased in exactly the same way as other ETFs and stocks.
You simply place the order through your share broker.
For example, here is the Sharesies page for the VanEck Gold Bullion ETF (read my Sharesies review here!):
Simply click "Buy" and place an order as you would with any other stock.
Not all gold ETFs are listed on Sharesies and other brokers, so you may need to check with your broker if they have the ETF you want.
Some popular gold ETFs are:
- SPDR Gold Shares (GLD)
- iShares Gold Trust (IAU)
- Perth Mint Gold ETF (ASX:PMGOLD)
- Global X Physical Gold (ASX:GOLD)
- Vaneck Bullion ETF (ASX:NUGG)
There are no gold ETFs currently listed on the NZX.
How To Sell A Gold ETF
Gold ETFs are also sold through your broker exactly the same way as other stocks.
One thing to keep in mind when selling your gold ETF is the exchange rate.
Because there are no gold ETFs on the NZX, you will be selling your gold ETF into a foreign currency.
Even though the gold price may have appreciated, your gains might not be as high when taking the exchange rate into account.
If the exchange rate has moved a lot against you since the time you bought your gold ETF, your gains will be smaller or you may even have a loss.
Online Gold Accounts
Some mints will have online trading accounts where you can seamlessly buy and sell gold assets.
The Perth Mint Depository Online is probably the most accessible online gold platform available to Kiwis.
This is convenient because you don't need to buy entire coins or bars, you can simply buy dollar denominations (such as $50).
This will entitle you to ownership of an equivalent weight to gold in their vault, even if it's not an entire bar or coin.
When you want to sell your gold, you can simply sell that allocation back to the mint at the market price.
This offers you a way to invest in gold and enjoy private ownership, without ever having to see or store the physical product.
You can also claim your gold as physical gold at any time, but obviously your ownership must be large enough to fill a claim for a full bar or coin.
Gold Savings Accounts
These online accounts can also double as gold savings accounts.
Similar to savings accounts at banks, online gold accounts give you the ability to regularly add to your gold holdings so they grow consistently over time.
For example, you can set up a direct debit of $50 per month to regularly increase your gold position.
As with most assets around the world, gold as been tokenized using blockchain technology.
Tokenized gold has several advantages:
- Can be traded globally within seconds.
- The ledger is public and transparent.
- Much lower fees than traditional brokerage.
- Can trade instantly (no account setup or verifications required).
- Some exchanges will pay you interest on your tokens.
However, be aware there are risks associated with blockchain tokens as they are not regulated in the same way as bank accounts, stocks or managed funds.
It is up to you to do your due diligence on who is issuing the tokens, and the verifiability of the gold reserves that back the token.
If you are not well versed in blockchain and cryptocurrency, it's best to stick to one of the more established investment options above.
PAXG is the most well-known gold-backed cryptocurrency, which is developed by Paxos and has been built on the Ethereum blockchain.
Paxos is well known in the crypto industry and is the developer behind Binance's stablecoin BUSD.
Every PAXG token is backed by an ounce of physical gold, stored in LBMA vaults in London, held in custody by Paxos Trust Company - a New York company regulated by the NY State Department of Financial Services (NYDFS).
As an owner of PAXG tokens, you can redeem your tokens for gold bullion bars from LBMA at any time.
How To Buy PAXG
The easiest way to buy PAXG in New Zealand is through EasyCrypto.
If you have not purchased crypto through EasyCrypto before, you can read my beginners guide here.
PMGT is a cryptocurrency token backed by Perth Mint Gold.
The tokens were developed by a Sydney technology firm called Trovio in partnership with the Perth Mint, and are issued on the Ethereum blockchain.
Each PMGT token is backed by a 1 ounce GoldPass certificate which entitles the holder to 1 ounce of physical gold.
PMGT may be exchanged for GoldPass certificates at any time on a 1:1 basis.
How To Buy PMGT
The easiest way for NZers to buy PMGT tokens is through Independent Reserve.
Independent Reserve is a cryptocurrency exchange which in my experience is one of the better operated exchanges in Australia.
It is open to NZers and you can trade in NZD, AUD or USD.
Which Gold Is Cheapest?
One thing you will hear a lot in investment circles is talk about the "gold price".
When people say "gold price", what they are referring to is the spot price of gold on the international market.
The spot price is usually quoted in USD for 1 troy ounce of gold:
Gold price by GoldBroker.com
If you're savvy, one thing you will have noticed is that not all gold bars and coins are priced the same.
New Zealand minted coins, Australian mints, US mints, and all other international mints are all priced differently.
All of them will be priced higher than the spot price of gold, due to the costs involved in marketing, packaging, shipping, designing, securing, and producing these bars and coins.
This difference between the spot price of gold and actual gold bars and coins is known as the gold premium.
Some mints will have a higher gold premium than others.
Which Gold Has The Highest Premium?
As I'm writing this, the spot price of gold is $1,935 USD per ounce, or $62.21 per gram.
This converts to approximately $96.73 NZD per gram.
Here's how the gold bars available in New Zealand compare to the spot price:
As you can see - how you choose to invest in your gold matters.
Not to mention, some methods incur more costs than others.
If you need to pay for safety deposit boxes, this will add to your premium.
Likewise if you're purchase of an ETF requires brokerage fees, that adds to your premium.
Even physical gold can differ greatly in premiums.
You may really like the design of a particular gold coin or bar, but is it worth paying an extra 10% premium for it?
All of this needs to be considered in your investment decision.
Taxes On Gold
According to the latest IRD guidance, gold is exempt from GST if it has a purity of at least 99.5%.
In practical terms, this means most gold for investment is exempt from GST (such as gold bars and coins).
Gold jewellery on the other hand is almost always mixed with other metals, dropping its purity to around 91%.
In summary - investment gold is (usually) GST exempt.
Gold jewellery is subject to GST.
You can read the latest IRD guidance for GST on gold here.
Income Tax / Capital Gains Tax
While there is no passive capital gains tax in New Zealand, the rule is not so black and white.
The no capital gains tax rule was primarily to prevent people from having unexpected tax bills when selling their family home or business.
However, the IRD states that if you purchase an asset and the primary intention is to sell it for a capital gain, you need to declare that gain as regular income and pay tax on it.
Here is IRD's current position on gold bullion:
"As bullion does not provide annual returns or income while it is held, nor does it confer other benefits (which other investments that do not provide income while held might). The Commissioner therefore considers that, for gold bullion, the nature of the asset is a factor that strongly indicates that it was acquired for the dominant purpose of ultimately disposing of it."
To simplify that for you, the IRD believes that because you don't earn interest or dividends on gold, and it doesn't provide any other benefits (such as voting rights you get with shares), the only plausible purpose that remains is that you intended it to sell it for a gain.
Therefore, in most circumstances your capital gains on gold will be taxable (when you sell it)
Note that this guidance doesn't actually hold true when it comes to PAXG, as you can indeed earn interest on your PAXG tokens at multiple exchanges and custodians (such as Binance).
- Physical gold, gold ETFs, gold tokens, and online gold trading accounts are all legitimate ways to invest in gold.
- Physical gold gives you the most control, but comes with the most costs.
- Gold ETFs and online accounts are the easiest, but opens you to third party risk.
- Gold tokens are the best value, but are a new technology and also come with third party risk.
- Gold trades at a "spot price" which is quoted at USD per troy ounce.
- When you buy gold, you usually pay a premium to the spot price.
- The premium depends on which method of gold investment you choose.
- Investment grade gold is usually exempt from GST.
- When you sell your gold for a gain, you are usually required to pay capital gains tax.