Joel Greenblatt, one of today's investing gurus and bestselling author of several books, including The Little Book of Stock Market Winners, loves to tell the story of how he once gave a lecture to orthopedic surgeons. One day, after his speech on what the market is and what stocks should be invested in, they started asking him questions like this: “Oil fell by 2.5% yesterday, maybe we should buy a little?” And then he realized that he had failed, and did not speak to the doctors again.
What is this for? Investments, as a rule, are not about what has fallen in price today (yesterday), and not about what has begun to rise in price. That is why I would not like to look at the gold case from the point of view of the latest record, when its price exceeded $1,600 per ounce, and the interest in the “gold” topic that arose in connection with this. As a rule, in such situations there is no shortage of optimistic forecasts. For example, there is an opinion that in the next 12-24 months the price of gold will reach $2000 per ounce.
However, for understanding the modern role of gold, much more important is the fact that over the past two years, prices for this metal have grown faster than the broad US stock market index - the S&P500. It is also important that investing in gold has its own specifics and is very different from how, for example, they buy and sell shares on the stock market. We are not talking about speculation now, but we see before us the usual tasks of a private investor who wants to preserve and increase what he has managed to earn. What should he do if, for one reason or another, he has not yet jumped on this brilliant “train” or, for example, he already has certain gold “reserves” and is tormented by the question: “Should I sell or is it better to buy?”
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Investments in gold
Gold is constantly rising in price. It is one of the few assets in the world that has been in demand throughout human history.
In terms of profitability, earnings on gold are approximately equal to investments in real estate. This means that the yield is quite low, even despite the fact that in our country over the past 14 years, gold has risen in price almost 7 times.
Investors actively buy gold when they want to protect themselves from a financial crisis. The last global financial crisis was in 2007-2008, when the American mortgage market completely collapsed. Then gold literally within a few months received a huge increase in value (almost 2 times).
Since the Russian economy is unstable, and the real level of inflation is quite high, gold remains one of the means of preserving and increasing funds. The cost of gold is a real indicator of inflation in the country. Since it has grown almost 8 times, the inflation rate for goods outside the basic consumer basket is approximately 2 times lower.
Let's look at what real ways there are to make money from gold, how long it will take to recoup your investment, and whether there are alternatives to simply buying the precious metal.
Initial steps
To purchase gold legally, you need to submit an application to the tax service and register as an individual entrepreneur. In this case you will need to provide:
- passport;
- TIN certificate.
After completing all formal procedures, you can begin to choose the room in which you will receive gold. You will need to obtain permission from the fire and sanitary inspection. Remember such an important factor as safe storage of valuables. Buy a safe, install a video surveillance system, resolve the issue with the security alarm. Draw up an agreement with a security agency, enter into an agreement with an insurance company. Everyone knows that criminals are always interested in gold.
It is also required to obtain permits issued by the Assay Office and Rosfinmonitoring. The Assay Office must provide the charter and constituent documents (copies), a certificate of state registration (copy), and a registration card. In addition, you will need to provide a TIN, Unified State Register of Legal Entities/Unified State Register of Individual Entrepreneurs, statistics codes, and certified copies of documents for the premises.
Ways to make money on gold
There are several ways to make money buying gold. Let's figure out what pitfalls each of them has.
Buying gold
This is the standard way to invest in gold. It would seem that it should be popular, because, as we found out, gold is inexorably becoming more expensive. But in fact, buying real gold bars comes with some nuances. When purchasing a gold bar you will have to pay VAT (18%). Then, after the sale, you will have to pay for an expensive examination (the cost can reach 15 - 20% of the cost of the ingot).
Therefore, to get your first profit, you need to wait for an increase of 35 - 40%. However, there is no point in investing in gold during a crisis, as there are many good alternatives.
Storing gold is very difficult. It is best to leave it in the bank, because any damage - the metal is considered unusable, and it can no longer be sold at full value. Even just by printing the packaging, you are throwing your investment down the drain.
Unallocated metal accounts (OMS)
This is a more advanced investment option in precious metals. You are not buying the bullion itself, but rather opening a bank account linked to the precious metal. That is, you are formally the holder of 1 gram of gold, but in fact you have money in your account, the value of which changes in accordance with the exchange rate.
Advantages of impersonal metal accounts:
- Not subject to VAT.
- You can buy and sell gold remotely.
- There are no problems with storing and transporting metal.
- Possibility of asset diversification.
- A simple procedure for buying and selling metal.
Compulsory medical insurance is much more convenient than physically storing gold. As I said above, when the package is opened, the gold is hopelessly deteriorated, and the real bullion can simply be sold for scrap.
Diversification (separation) is the ability to transfer funds by dividing them into several assets. When you have a real gold bar in your hands, you can only sell it. When you have money in compulsory medical insurance, you can withdraw part of it, invest it in another asset and divide the savings into several types.
Now let's move on to several non-standard ways to make money on gold.
Buying shares of gold mining companies
Since gold rises in price during a global crisis, you can buy securities of gold mining companies when the economic situation is difficult all over the world. This is an indirect investment in gold, since if the price of the metal rises, the positions of mining companies also grow.
This is a rather risky way of investing, unlike investing in the metal itself. Gold cannot go bankrupt or make a bad decision. And the company is fine. Therefore, without experience in the stock market, it is better not to use this option.
Gold bullion coins
The Central Bank periodically issues investment coins for some memorable events and dates. After this, after some time, banks begin to actively buy them. The obvious disadvantage of this method is that credit institutions buy coins at a price much lower than the nominal price.
This is not a way to make money, but to buy interesting coins. Any investment coins are illiquid. You can sell quickly only if the value is greatly reduced.
You can make money this way only if you wait several decades until such coins become a real rarity. But if they were released in large quantities, then this is unlikely to happen. This method is for informational purposes only, I do not recommend it.
Gold investment funds
Investment funds that focus on precious metals can generate much greater returns than traditional gold investments. The first such companies emerged relatively recently - in 2003, but gold trading is their main activity. A rather controversial way to make money, because this is already a kind of investment in a speculator.
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How much do you need to invest to make money on gold?
Earnings on gold belongs to the category of long-term investments. That is, do not expect to withdraw your savings earlier than in 4 - 5 years. And if this is a long-term investment, what matters is not how much you invest, but whether you replenish it regularly.
In order for your savings to increase after several years, you will have to periodically replenish your account. Today the price for 1 gram of 999 sample is 2,818 rubles. This means you need to invest about 3 thousand rubles every month.
You can work with gold if you have about 3 thousand rubles a month in free money. This should be about 10% of your salary. More is possible, less is not recommended.
Buying bullion
This is the most understandable way for most citizens who are interested in how to make money from gold. Theoretically, it is he who should lead among all others and bring the greatest profit. After all, in exchange for money, which is depreciated by inflation, you receive a gold bar, which in the future can be sold profitably.
However, there are many nuances associated with the purchase of physical bullion from precious metals. For example, when purchasing a gold bar, VAT is added to the price, which will soon amount to 20%. When selling, you may have to pay for an expensive examination that can confirm that your bar is actually made of gold. Such additional costs significantly increase the initial cost of the ingot.
In addition, gold is very difficult to store. If there is any damage, the ingot cannot be sold at its original cost; its price will be significantly lower. This is why purchasing bullion is not always the best option for those wondering how to make money from gold.
Earnings on gold in Sberbank
Since Sber is the most popular bank in Russia, most citizens believe that they should use its banking products. Let's see what prices Sberbank provides us with, what conditions it can offer and whether it is worth looking for alternatives.
Gold cost per gram:
- Purchase: 2,414 rubles.
- Sale: 2,818 rubles..
Compulsory medical insurance:
- Purchase: 2,377 rubles.
- Sale: 2,903 rubles.
Interest is not accrued on such deposits in any case. This means that gold has no special advantages compared to ruble investments in a bank. At the same time, the prices are quite unprofitable in comparison with the market. For example, at VTB at the same time:
- Purchasing compulsory medical insurance: 2,550 rubles.
- Sale of compulsory medical insurance: 2,730 rubles.
As you can see, it will be unprofitable to focus on working with Sberbank. See all compulsory medical insurance offers in banks in your region, analyze the rates and choose the credit institution that gives the best prices.
Jewelry
Buying some jewelry is another way for an unqualified investor to invest in gold. You can buy rings, chains, crosses and other jewelry. All this looks very nice and can even bring some benefits. If you look at it from the profit perspective, investing in jewelry is a worthless investment. Because it is unlikely that you will be able to resell your jewelry at a higher margin. I won’t say that many fakes are sold in Russia, so you need to buy jewelry only in large stores. In pawnshops everything is much cheaper, but no one there will give you a guarantee that it is even gold.
Shares of gold mining companies
This is a rather indirect way of investing your own funds in precious metals. If the price of gold rises, the shares of the corresponding gold mining companies also rise.
However, it is worth understanding that this method does not involve the purchase of gold. You purchase shares, which entails corresponding consequences. For example, a company may go bankrupt and leave its shareholders with nothing. That is why this method of generating income is not recommended for those who do not have relevant knowledge regarding the stock market.
Basel III: the global financial revolution
On March 29 of this year, Basel III, developed by the Basel Committee on Banking Supervision, came into force, returning gold to its historical significance. In short, about 40 years ago, the same committee abolished the gold backing of the dollar, making US currency and Treasury obligations virtually the only valuable instrument in the world. How and why this happened is a long and dark story. Gold was simply turned from a universal equivalent into a market commodity, like oil or cotton. In bank reserves, gold can now be accounted for only at half its value, which means that it is unprofitable to purchase and store it, since it is possible to issue loans and money into circulation only at half its market value.
Despite this, today it is the US Central Bank that has the largest official gold reserves in the world - 8,133 tons. For example, Germany, second on the list, has more than two times less gold - 3,369 tons. Russia, with all of last year’s increase, ultimately has 2,119 tons of gold in its reserves. So, Basel III says that from now on gold is a full participant in group 1 of assets, equal to the dollar.
This means that the interest of states, banks and private investors in it should also increase. For example, instead of dubious dollars and treasury bonds of other countries, countries can store their entire funds in real, shiny, highly liquid bullion. In our own vaults, under full control, and not increasing the influence of other countries through demand for their currency and securities.
Experts explain the long-term decline in the value of the metal (from approximately 2012 to 2016) precisely by the global game in the market, through which prices were artificially lowered in order to buy large volumes at a low price - after all, the entry into force of Basel III was known already in 2011.
Profitability
How much can you earn from gold? This is perhaps the most pressing issue for those who are interested in generating income in this way. Don't expect to know the exact amount. Because income is influenced by many factors:
- The amount of gold you own.
- Method of purchasing precious metal.
- Holding period, etc.
Even the economic situation on the market affects the success of the transaction.
Let's assume that you buy gold at a price of 2123 rubles, and after some time you sell it for 2223 rubles per gram. Accordingly, your profit will be one hundred rubles for each gram sold. The more grams of gold you sell, the higher your final profit.
You need to understand that profitability largely depends on the holding period. Do not try to sell the precious metal almost immediately after acquisition and make an impressive profit. Experts say that you need to own an asset for at least four to five years. In this case, the deal may be profitable for you.
It is important to understand that investing in gold is not a short-term profit, but a long-term investment. That is why, in order to obtain short-term profits, it is better for a potential client to consider alternative ways of investing their own funds. However, if you simply want to protect your savings from inflation, buying gold may be the most suitable option for you. In addition, this method can bring additional profit when prices for precious metals rise. Agree, the above reasons are quite enough to understand the topic in more detail. You should not accept the first offer when buying gold.
