The original form of money for many countries, gold has long set the standard for reliability and consistency within the investment marketplace, making it an interesting addition to any investment portfolio.
Want to find out more about investing in gold in New Zealand? Read on to learn about why gold is so valuable, the different ways to buy gold, and the benefits of investing in gold. When reading this article, please bear in mind that its contents are not intended as any form of investment advice. Consider all information provided as a non-specific general guide only.
Why Is Gold So Valuable?
In its simplest form, gold is a precious metal mined from rock. Its importance lies in its use as a common medium of exchange. For thousands of years, the perceived value of this soft, shiny, yellow substance has formed the foundation of an evolving currency system. Recognised by even the remotest cultures and civilisations, gold offers a form of global currency as yet unmatched by modern-day monetary systems.
While it is true that gold no longer possesses the traditional monetary qualities it has in the past, it is still considered an asset with underlying merits that make it a unique method of storing value and wealth. In today’s modern economic environment, there are numerous gold and gold-derivative products designed for investment purposes. Find out everything you need to know about buying gold in New Zealand below.
A Brief History Of Gold
In order to fully understand the value of gold, we must look to the past. History shows us that gold has been around for thousands of years and treasured by many different cultures during that time.
The ancient Egyptians valued it for adornments, jewellery and religious artefacts. The Incan civilization of Peru considered gold to be the sweat of the sun god Inti, it was prized for use in manufacturing religious objects of significance such as masks and sun disks. The Romans believed gold descended from the sun and was therefore the metal of the gods. It was widely used to signify wealth, prosperity, and social status.
Wherever gold was believed to have originated from, the general consensus among most ancient civilisations was that this precious metal represented wealth and power.
It wasn’t until around 560 BC that gold was seen as a viable form of “standardised” currency transferable across continents with the view to simplifying trade transactions. And although the value of gold was widely recognised in its jewellery form at this time, it was the production of stamped coins that paved the way for the ‘Gold Standard’ monetary system.
Simply put, the Gold Standard was a metal-based currency system whereby the monetary value of paper money or coinage was directly linked to the amount of gold (or silver) that it represented. This system worked across different countries as each currency was fixed in terms of gold, which also meant exchange rates between participating currencies were fixed.
The United States further reinforced this Gold Standard when they established the Bimetallic Standard, which dictated that the money circulating in society was a direct representation of the amount of gold or silver sitting in the bank.
The classic Gold Standard was a fairly robust system that lasted for some time (officially between 1870 and 1920), but it did not last through the Great Recession. By 1931 Britain abandoned the concept of the gold standard and its currency ceased to be backed by gold, the United States followed suit soon thereafter.
The gold standard was replaced by the ‘Fiat Money’ concept, where the currency used is because of a governmental order (or fiat), and that currency must be accepted as legal tender (a means of payment). In New Zealand, for example, the dollar is fiat money, and for India, it is the rupee.
Fiat money is not backed by any physical commodity, such as gold or silver. The fiat money system gives central banks more significant control over the economy because they control how much money is printed. One of the biggest dangers of fiat money is that because it isn’t linked to any physical reserves, it risks losing value under high inflation or even becoming worthless in the event of hyperinflation.
How To Buy Gold In New Zealand
How do you safely buy gold here in little old NZ? There are three main ways most investors will enter the physical gold market – coins, bars and jewellery. Plus, there are several other ways you can dabble without the added cost or concern of owning and storing actual gold. These include Gold Mutual Funds, Gold Stocks, Gold ETFs or EFCs and investing directly in Gold Companies.
Buying Gold Coins
Gold bullion coins are available in different weights, purity levels and associated values. Some coins are widely distributed, and others are offered as a limited edition. Coins are generally considered to be a more accessible investment option as they are cheaper to buy and can be more quickly liquidated. Just like regular coins, gold bullion coins have a nominal value (based on weight, purity and the current gold spot price), and they can also have an added collector’s value if sufficiently rare enough.
What Are The Best Gold Coins To Buy?
Logic dictates it is best to buy widely accepted minted coins that are easily recognisable and authenticated. Sticking to standard 1 troy ounce weights is also a good idea. The reason for these recommendations is largely because the resale and authentication process will be much easier and more straightforward. The most popular investment coins in NZ are the:
- Royal Mint UK ‘Britannia’. Depicting an effigy of Her Majesty Queen Elizabeth II and British cultural icon Britannia (a female warrior/goddess holding a trident and shield).
- Australian Perth Mint ‘Kangaroo’. Depicts Queen Elizabeth II on one side and Australia’s native Kangaroo on the other.
- Royal Canadian Mint ‘Maple Leaf’. Depicting Canada’s maple leaf and Queen Elizabeth II.
- United States Mint ‘Eagle’. Depicting Lady Liberty and an eagle.
- Austrian Mint ‘Vienna Philharmonic’. Depicting the Great Organ of the Golden Hall in Vienna’s concert hall, the Musikverein and on the reverse, an array of instruments, including the cello, violin, harp, Vienna horn and bassoon.
- South African Mint ‘Krugerrands’. Depicting Paul Kruger and the springbok antelope.
Buying Gold Bullion Bars
Gold bars are probably what most people think of when imagining the purchase of physical gold. Options for gold bars include gold minted bars (more uniform, produced by official Mints) and gold cast bars (produced using moulds, less intricate, more imperfections).
Gold bars are available from the usual authorised Mints, but they can also be purchased from other private suppliers (refineries), which widens their availability but can also create uncertainty when selling for future generations if the company is no longer in existence.
Gold bullion bars come in various sizes and shapes, however, a rectangular appearance is pretty standard. Sizes (weights) of gold bars range from as small as 1 gram up to 1 kilogram.
What Is The Best Size Gold Bar?
Gold bars come in all different weights and sizes. Most often they are small and rectangular. Minted gold bars come sealed and packaged for added protection. The most common sizes of gold bars are 1oz, 2oz (or 50 grams), 10oz, 250 grams, 500 grams and 1 kilogram. The weight you choose will depend on how much you are looking to invest and your objectives. Generally speaking, the smaller the bar of gold, the higher the premium when taking into account the cost to mint or stamp the bar, package it and get it ready for sale.
Buying Gold Jewellery
Instead of locking it away in a vault like gold bullion, gold jewellery has the benefit of choosing to be worn. Wearing rings, necklaces and pendants, earrings, cufflinks and bracelets are all popular choices.
One of the key differences in buying gold jewellery is you generally pay a premium for the jeweller’s time, store markup, GST tax and sometimes brand. As pure gold is a soft metal it needs to be mixed with other harder metals to maintain its integrity when being worn.
- 24 karat gold is 100% pure gold with no other metals mixed in.
- 22 karat means it will be made up of 91.6% gold and 8.4% of other base metals. This is the same proportions (fineness) as the Krugerrand gold coins.
- 18 karat gold contains 75% gold and 25% other metals.
- 14 karat gold contains 58.5% gold and 41.5% other metals.
- 14 karat white gold typically contains 58.5% gold, 32% silver and 9.5% palladium or platinum.
- 14 karat rose gold typically contains 58.5% gold, 32.5% copper and 9% silver.
- 9 karat gold contains 37.5% gold and 62.5% other metals.
Other Ways To Invest In Gold
If you don’t want to buy physical gold coins, bars, there are other ways you can invest or trade in gold, three common examples are:
Gold Investment Plans
Some gold dealers and refineries provide precious metal investment services. Much like you would invest in the share market, these online trading accounts that allow you to buy increments of gold and silver over time, easily adjusting the amount and timing of what you buy and sell. Bear in mind these are private companies and due diligence is required.
Whenever the price of gold shows positive gains the companies involved in the gold and mineral mining sector also do well on the stock market. The underlying logic to this is whenever gold prices rise, so does the demand. Investing in gold stocks will require entry to the US share markets.
Gold ETFs And ETC’s
EFTs (Exchange-Traded Funds) and ETCs (Exchange-Traded Commodities) are a cost-effective way of hedging your bets across the industry sector instead of investing in just one company, for example, gold mining or gold commodities. You effectively buy a bundle of shares in numerous gold-producing related companies or across numerous thematic exchange-traded funds. The VanEck Gold Miners ETF (GDX) is the largest gold mining ETF. Expect to be charged management and/or brokerage fees.
Is Gold A Good Investment?
As with any investment, investing in gold has both advantages and disadvantages. For some, physical gold is the answer to portfolio diversification; for others, gold stocks are a good dividend paying asset – read on to learn more about the benefits of investing in gold.
- Reliable Returns. Gold is generally considered to be a longer-term investment that can be relied upon to increase in value on average over time. Gold has successfully preserved wealth throughout many, many generations.
- High Liquidity. In most instances, gold-based investments can readily be converted to cash.
- Low Correlations. Traditionally gold tends to perform well when other markets are not. Investors tend to look to gold when they perceive the economy to be threatened as a way of protecting wealth, as gold is not correlated to stocks, bonds, or real estate.
- Portfolio Diversification. Investing in gold represents a stable portfolio diversification because gold is generally not correlated to other assets and provides a reliable investment in uncertain times. Gold has the ability to resist political unrest, economic decline and hedge against inflation, holding its value regardless of what the situation entails. This is because with rising inflation, gold typically appreciates because investors realise money is losing value, so they shift into more traditional ‘hard assets’ that maintain their value. There is a similar mindset when political unrest is afoot and/or the collapse of currencies.
- Strong Dividend Performance. While gold returns are traditionally reliable over the longer term, this is not always the case. Typically gold stocks can achieve a higher return on investment (ROI) than owners of physical gold. Physical gold produces no consistent cash flow, gains are only made when it is sold. In contrast, gold stocks can provide a dividend-paying asset because mining companies are still profitable even when gold prices have declined.
What You Should Know Before Buying Gold?
Thinking of buying some gold? Here are 4 things to think about before making the commitment.
- Storage. The number one concern with buying physical gold is that it requires secure storage. Yes, you could keep it at home in your safe/garage or under the floorboards but most investors prefer a secure custodian. Make sure you research secure options for gold storage before committing to buying gold. And keep in mind that paying for storage does add to the cost of your investment. See more below on storing your gold safely.
- Insurance. As with any physical asset, your gold will need insurance, particularly if you choose to store it at home (theft or natural disaster). If using a storage provider, always check their insurance policy to ensure your investment is well protected.
- Source. Always buy from reputable, well-known manufacturers, sticking to products from globally recognized mints. You are making a significant investment, you want to ensure the value of that investment will grow and not be undermined by questionable sources. When buying gold in New Zealand, look for well-respected producers such as the Perth Mint, the Royal Mint, the Austrian Mint, the US Mint and the Royal Canadian Mint. It is important to be aware the New Zealand Mint is a privately owned company that sells gold, it is not owned or specifically endorsed by the New Zealand government.
- Purity. The actual percentage of gold contained in the coins, bars or jewellery that you buy is the single most important factor when determining its value. Always ensure any gold you purchase as an investment has a purity level 99% pure.
How To Keep Your Gold Safe
When buying gold, most people’s biggest concern is how to keep it safe. Generally speaking, there are four options for this in NZ. Some gold buyers in NZ might also choose to store a portion of their gold in offshore storage facilities to ensure all bases are covered.
- Secure Custodial Vault Storage. Insured Custodial Gold Storage services usually come in the form of a safety deposit box situation in a secure purpose-built vault. These services are usually precious metal-specific and the providers often offer sale and purchase services, specific insurances and state-of-the-art vault facilities. A good example of this type of service is New Zealand Vault.
- Private Safety Deposit Box Storage. Historically a service offered by banks, more generalised safety deposit box storage is now more prominent in the private sector. This service is not designed explicitly for gold or precious metals but is a widely used and generally well-respected option for storing all kinds of valuables in a trusted manner. An example of this type of business is the Commonwealth Vault.
- Bullion Dealer Storage. Some gold dealers (the companies you might purchase your gold from) also offer storage services for an additional fee. Ask about the storage options available when choosing where you make your purchase if this is the option you wish to take.
- Home Or Self Storage. Storing your gold at your home is also an option for some. This will likely include buying a secure home safe, and you will also need to look at including the gold on your contents insurance policy. The safe needs to be large enough, strong enough and secure enough to keep the gold safe from fire, theft and other perils. It also needs to be bolted down to prevent thieves from making off with the entire safe. The number one rule for storing gold at home is don’t tell anyone you keep gold at your house!
Investing In Gold – Frequently Asked Questions
As with any investment opportunity getting your head around the ins and outs of investing in gold can be a little challenging. So to help you out, we have put together this list of FAQs to help you understand some of the common queries.
How Is Gold Taxed In NZ?
According to the IRD, if the fineness of your gold is greater than 99.5%, it is exempt from Goods and Services Tax (GST). However, it is necessary to pay tax on any profits earned when selling gold. It is best to discuss this with a qualified accountant.
How Much Gold Can You Own In NZ?
You can own as much gold as you like, however, there may be limits on travelling with large amounts of gold depending on which countries you are entering. Be prepared to justify how you acquired it.
Is It Worth Investing In Gold In NZ?
Gold is often seen as an alternative currency and admired for its beauty. There are many opinions on whether it makes for a profitable addition to your investment portfolio – a decision perhaps best left to the individual and their financial advisors, but suffice to say, people have had confidence in its value for centuries.
What’s The Difference Between An ETC And An ETF?
An ETC is an exchange-traded commodity, and an ETF is an exchange-traded fund. The difference lies in the terms ‘commodity’ and ‘fund’. An ETC consists exclusively of a commodity (goods or services).
Should You Buy All The Same Coins/Bars?
Investment advisors tend to suggest avoiding having an inconsistent collection of coins or bars. This might mean sticking to one form (coins or bars) and/or favouring a particular mint. If you want to sell multiple coins to the same person, it’s easier for them to authenticate a set rather than several different coins with individual hallmarks and security features.
What Is The Difference Between Minted And Cast Bullion?
Coins can only be minted by mints authorised or owned by the government or state where it operates. Cast bullion implies rough cast gold bars that contain much less detail to their appearance. The gold contained within cast and minted bars are of the same value however minted bars tend to be easier to authenticate and offer a more collectable item.
What Is A Troy Ounce?
What is the difference between a troy ounce (ozt) and a regular ounce (oz)? A troy ounce is used exclusively by the precious metals industry as a measure of weight. It differs from a normal ounce (28.35 grams) and weighs a total of 31.103 grams.
How Do You Sell Gold In NZ?
The safest and most reliable way to ensure you are getting a fair price for your gold is to sell it through a reputable dealer. Pawn shops and generalised online marketplaces will generally pay below market price and expose you to unnecessary risk.
How Do You Know If The Gold Is Real?
Fake gold is a very real prospect when buying from second-hand dealers or resellers. Always stick to reputable dealers and look for professionally packaged bullion.
Investing in gold, whether it be jewellery, coins or bars, requires a significant investment of time (to do your research) and money. Always get professional financial advice before committing to any investment decision, and only ever buy from reputable gold suppliers.