According to Investing.com, the price of one ounce of gold (the metal’s base unit of measurement is equal to 31.1 grams) reached $1,933.10 on Friday, April 8th. In January, that figure was $1,797.4. Gold is interesting primarily for its investment portfolio diversification. However, there are risks associated with investing in gold. Dmitry Evteev, Chief Economist of the Main Department of the Central Federal District of the Central Bank of Russia, identified five main topics for socialbites.ca.
Risk #1 – investment
It is difficult to predict the movement of gold prices, even for experienced analysts. Many factors should be taken into account here: the situation in the global economy and the global financial market, the geopolitical situation, the situation and prospects of the gold mining industry.
“Over the past decades, gold has shown a really pretty good ability to preserve the purchasing power of savings over the long term, including those related to stock market instruments. Thus, from the beginning of the 21st century to the present, gold has grown almost sevenfold in dollar terms, while the US stock index S&P500, for example, has increased by more than three times only.”
But, according to him, on closer inspection the picture is not so clear. in the 2000s nail Gold fast showed superior dynamics. But from mid-2011 to 2019, on the contrary, the price of gold showed a predominantly downward trend. “From the summer of 2011 to the end of 2015, the price of the precious metal fell by more than a third and moved in what is called a “flat” with a volatility range of $1300-$1600 per ounce until 2019. A prerequisite for such dynamics is that investor funds can invest in alternative assets. It could be a significant redistribution in favor of it,” he said.
Gold is a market asset whose price is formed by the effect of supply and demand and is also subject to significant fluctuations.
“History demonstrates the precious metal’s good ability to protect savings from inflation and devaluation. But historical returns are no guarantee of comparable future returns,” Evteev stressed.
The optimal share for gold investments is 10-20% of the portfolio. The dynamics of gold prices are available on the website of the Central Bank of Russia. On working days, the Central Bank sets discounted prices for precious metals. They are used by commercial banks when they set up their own banks. lessons buying and selling.
Risk #2 – Theft
When there is confidence in the reliability of this option, it is possible to store gold bars or coins made of precious metals at home “under the bed”. Here everyone decides for himself how to consolidate his self-confidence and build his own reserve. It is not in vain that the demand for cases has increased recently – sellers and manufacturers have reported this.
Safe deposit boxes can also minimize the risk of treasure loss. You will have to pay for this option – the cost will be different depending on the size of the cell. Some banks may offer a few months’ rent as a gift. However, the deposit insurance system does not cover such storage.
Risk #3 – Liquidity
“If we talk about gold bullion, when buying from a bank, a manufacturer’s certificate is necessarily issued, indicating the weight of the product, the individual number of the bullion, the sample, its mass and the name of the factory”. Dmitry Evteev explains. Without this document, bullion will not be accepted at the bank. Problems may arise and if the text in the certificate is poorly readable.
It is possible to miss some of the money when selling an ingot: products with scratches, chips and other defects will be considered at a discount. Each bank independently determines the size of the discount. This also applies to gold coins – if the coin is stained (finger stains may remain on the metal), bent, dented – you can say goodbye to a part of the income.
And when buying bars and coins, banks independently set a discount to market prices: for coins it can reach up to a third, for bars – up to 10-15%.
We should also not forget that buying gold jewelry should not be seen as an investment, unless we are talking about antiques and masterpieces. Ordinary items that the world’s best auction houses don’t go after can be handed over to a pawnshop, but at a serious discount.
Risk #4 – Bankruptcy
If an investor has invested not in physical gold but in virtual gram precious metals in impersonal metal accounts (OMAs), they will not be seized by a thief, time will not spoil their appearance, and there will be no need to pay extra. for production and design (as with coins). But another risk arises – the bank that took into account your gold grams may disappear.
It is not included in the OMS deposit insurance system in banks. Stock instruments that allow you to invest in precious metals (mutual funds, ETFs, gold miners’ stocks, etc.) are not included in the deposit insurance system.
Risk #5 – taxes
Gold investments have been dubbed the safe haven to invest in tough times. However, the investor should remember that such investments are a very heavy anchor and are designed for the long term. “If you sell a bullion or gold more than three years after the acquisition and you receive income from this transaction, a person must independently fill out a declaration and pay an income tax of 13%,” Evteev said. This also applies to impersonal metal accounts. Personal income tax is levied on the difference between the purchase and sale prices of precious metals.