Our complete guide on how to invest in gold in Australia. Learn everything there is to know about investing in gold, from the history of gold right down to where you can buy gold and gold stocks as well as how to sell and store your gold.
So you’ve decided it’s time to invest in gold.
Good thinking. But now you’re wondering, ‘What gold product should I buy?’
In Australia, we have many options available when it comes to buying physical gold or investing in an exchange traded fund (ETF) that tracks the gold price.
Australia has had a long-standing relationship with gold.
In 1851 when prospector Edward Hargraves found gold specks in Lewis Ponds Creek, in New South Wales, it triggered one of the biggest gold rushes in history. One that would change Australia forever.
For one, the gold rush shaped Australia’s current resource-based economy.
For another, it brought in huge amounts of people into the country in search for physical gold. Australia’s population almost quadrupled from 430,000 to a whopping 1.7 million over the next 20 years to 1971.
Many of those who came in search for gold found nothing. Truth is, gold prospecting ain’t easy.
Others, like Bernhardt Otto Holtermann, literally struck gold.
In 1872, he along with Ludwig Hugo Beyers found what later became known as ‘Holtermann’s Nugget’, a 290kg mass. Just to give you an idea of the size of the ‘nugget’, here is a photo of Holtermann next to it.
Source: Australian Museum
Along with quartz and slate, the mass contained 93.2kgs of gold (3,000 troy ounces), or close to a whopping $8 million at time of writing.
Physical gold has been around for a long time, and people have been hunting it for centuries.
Is Now a Good Time to Invest in Gold?
Gold was an intrinsic part of our financial system up until only a few decades ago.
The 1944 Bretton Woods Agreement meant that gold determined the value of every major currency. It secured the pegging of the US dollar to gold and tied other currencies to the US dollar.
But the system collapsed in 1970s, and since then, we’ve had fiat currencies. That is, our currencies aren’t backed by anything.
During the last global crisis in 2008, the major global central banks lowered interest rates and resorted to ‘unconventional’ tools like quantitative easing, where they bought treasuries and mortgage-backed securities to prop up the economy.
All this increased the amount of money in the system, but it also pushed asset prices up like property and the stock market.
With asset prices at record highs, gold lost some of its shine. Some people have even dismissed it as a relic or call it uncivilised because gold doesn’t pay a yield, and it costs money to store.
But in the last couple of years, we’ve started to see more of a demand for gold.
A lot of this coming from central bankers…
In 2018, central banks bought record amounts of gold…656 tons to be exact — the most since 1967 (when gold was still a huge part of the financial system).
By the end of 2018, central banks owned about 20% of all the physical gold ever mined in the world. Central bankers usually add gold to their reserves to diversify and to provide a hedge against inflation.
And then central banks did the same again in 2019…buying another 650 tons.
In 2018, the US Federal Reserve was trying to get the economy back to normal to prepare for the next crisis by reducing its balance sheet and increasing interest rates. But they never got there.
By the end of 2018, stock markets saw a huge drop, and the US Federal Reserve then reversed course and decreased rates again.
And then the pandemic hit…
Now the US Federal Reserve has lowered interest rates to record lows and have restarted their quantitative easing, even expanding it to include bonds. They’re flooding the system with money to stop the economy from freefalling.
But it’s all a huge experiment. Every time they do this, they debase the currency.
On the other hand, gold can maintain its value because there’s a limited supply of it. To increase the amount of gold, it has to be mined. According to GoldHub, in the last 20 years the supply of physical gold has been increasing at the rate of around 1.6% a year.
Buying Gold as an Investment
Gold is an important tool that can preserve wealth passed on by generations. But there are plenty of other reasons to own gold too.
As I said, gold can hold its value long term. And while it’s also a way to insure your wealth during a crisis, gold can still get you some returns.
As you can see below, gold has delivered an average annual return of 10% per year — similar to US stocks — since 1971, according to the World Gold Council.
It has even outperformed US stocks when you look at both investment assets for the last 20 years. It’s only been in the last 10 years that US stocks have provided a much higher return than gold, or any other asset class, for that matter.
Source: World Gold Council
Steps to Start Investing in Gold
Today, there are many ways you can invest in gold.
One is through owning paper gold, that is, buying things like gold Exchange Traded Funds (ETFs) or ASX gold stocks and the other is owning physical gold.
Investing in Gold ETFs and Gold Stocks
There are a few advantages to paper gold. It’s usually a lot cheaper than owning physical gold, as there are no storage fees. It’s also easy to buy and sell and there’s no need to go to a dealer.
The big disadvantage is that you don’t actually own tangible gold. Also, it brings counterparty risk which can leave you exposed if they ever went bust.
There are a few ETFs in the ASX that give you direct exposure to the gold price, like:
- BetaShares Gold Bullion ETF-Currency Hedged [ASX:QUA]
- ETFS Physical Gold [ASX: GOLD]
- Perth Mint Gold [PMGOLD]
Another way to get direct exposure to gold is to buy physical gold — So how do you go about buying physical gold?
Invest in Physical Gold in Australia
I’m a big fan of owning physical gold as a way to diversify and protect your wealth.
There are some disadvantages though, it’s not as easy or convenient as buying a gold ETF and it costs money to store.
There are also a few decisions — and quite a bit of research — you need to make before purchasing.
First, what type of gold should you buy?
One of the choices is to buy physical gold bars. They can come as cast or minted bars. Cast bars are produced by pouring gold into a mold and are cheaper while mint bars are stamped and have a higher finish.
Gold bars come in different sizes, so you will need to determine which size is right for you, depending on how much gold you want to buy. In general, the smaller amount of gold you buy, the higher the premium over the price of gold you will pay.
Apart from gold bars, you can also look at bullion coins, which also come in different sizes depending on the gold they hold. These have some great advantages as they are easy to store and transport, and many are considered legal tender in the country they are produced.
Also you can look at collectible coins but these are usually valued for their scarcity instead for the amount of gold they have and you investing in them requires quite a bit of research and leg work.
Where to Buy Gold Bullion or Physical Gold
Today, there are lots of places both online and physical stores where you can buy gold in Australia.
One of the most important things you need to make sure of is that you do plenty of your own research and that you find a reputable dealer — I can’t emphasise this point enough.
Some of the well-known gold dealers in Australia are:
- The Perth Mint
- Gold Stackers
- ABC Bullion
- Guardian Gold
- Ainslie Bullion
Please note that these are not recommendations nor do we have an affiliation with any of them. They are just a place to start your research.
Below is a list of the bullion gold commonly found in Australia:
- Australian Kangaroo Gold Bullion Coin: A gold coin from the Perth Mint containing one troy ounce of 99.99% pure gold.
- Royal Canadian Mint Maple Leaf: Similar to the coin from the Perth Mint, it contains one troy ounce and 99.99% pure gold.
- American Gold Eagle: A gold bullion coin from the US Mint. One troy ounce of gold at 99.99% purity.
Minted Bullion Bars:
- Kangaroo Minted Gold Bar: One troy ounce with 99.99%. Other minted bars to consider should come from a reputable refinery, such as PAMP or Argor-Heraeus.
- Kangaroo Mint 100g Minted Gold Bar: Contains 3.215 troy ounces of gold at 99.99% purity. Other refiners, such as PAMP or Argor-Heraeus, also offer a similar product.
The Perth Mint Gold Cast Bar 1oz, 10oz or 1kg: Each cast bar contains one troy ounce, 9.99 troy ounces and 32.148 troy ounces respectively.
If you are making a large gold purchase, the larger cast bars are the most cost-effective. Cast bars don’t have to come from the Perth Mint. You can purchase these bars from any reputable bullion dealer in Australia.
You’ll find a list of bullion dealers above. Most of these bullion dealers will have their own stamp on large-size bullion bars.
One point to note is that if you’re looking to buy physical gold online or over the phone you will need to show proof of identity. So if you’re looking to remain anonymous, you will need to pay a visit to the store.
When you buy physical gold, you will also need to think about how you will be safely storing it.
How to Store Your Gold
Here again, you have several options.
Many gold dealers provide storage services. That is, once you have bought gold, instead of having it delivered to your address, you can choose for the dealer to hold on to it for you for a price.
Here you can choose between two options: allocated and unallocated.
Allocated means that you own a specific bar or gold coin. You get a serial number and you can always come and pick it up anytime. No one can take that bar, buy it or sell it.
Unallocated is usually cheaper and it gives you rights to the quantity of gold you’ve bought, but it’s not assigned to a specific gold bar.
Another way to store physical gold is through a safety deposit box in the bank. Yet, if you are buying gold to diversify risk there is the chance that you won’t be able to access the deposit box if there is a crisis or a run in the banks and the bank closes its doors.
You could also store your gold in a security vault through a private company.
Or you could always choose to store it at home, which is riskier than all the other options above. If you decide to store it at home, you’ll want to make sure that you install a high-quality secure home safe and don’t tell anyone about it.
Keeping Track of the Gold Price
There are many factors that influence the price of gold.
One already mentioned is confidence in the financial system. Fear can push demand for gold higher.
There is also supply and demand, after all, gold is a commodity too.
And interest rates. You see, one of the main criticisms for gold is that it has no yield, but when interest rates go lower or real interest rates turn negative, it makes gold more attractive.
For Aussie gold investors there is an additional factor, the exchange rate between the Australian dollar and the US dollar.
Gold is priced in US dollars, so when the price of the Aussie dollar moves down against the US dollar, Aussie gold investors will get some extra money from the exchange rate. The best scenario for gold investors in Australia is when gold prices rise and the Aussie dollar falls against the US dollar at the same time. That’s when gold investors can benefit from both higher gold price AND the falling exchange rate.
It’s something that has been happening for quite some time. As you can see below, while gold prices in USD have been rallying this year (black line), the gold price has seen a larger increase in AUD (yellow line).
Gold is a safe haven and a wealth protector. But that’s not to say that investing in gold doesn’t come without certain risks.
There are a lot of advantages to investing in gold. Gold is outside the financial system, it’s in limited in supply, and is good for times of uncertainty…and these are some uncertain times!
All good reasons why you should consider gold as an investment.
We hope all this information helps you get started with investing in gold in Australia.
Check out our gold featured articles page to read the latest news and updates on Aussie gold and gold stocks.