National debts of the industrialized nations (USA, Europe, Japan, ...) is growing more and more, it now amounts to about 70 to 200% of the yearly GDP, and further increasing year by year. A reversal of this trend is completely out of sight. The worst situation is for Japan, various states in the EU, and the USA. The only realistic possibility to get control over the growing national debts is inflation.
The USA (FED) are already "printing" lots of money to be able to pay their debt. But gold of course cannot be printed. As a logical consequence from the basic mechanisms of supply and demand, the ratio gold/USD (i.e. the price of gold in USD) must increase in the long run.
The value of China's currency is artificially kept at a low level by the Chinese government - all Europe, USA and Japan agree on this. This reduces competitiveness of other products in comparison to the Chinese ones on the world market. To push the own economy, governments/central banks may want to undervalue their own currency. This may end in a vicious circle in which everyone wants to be the fastest. Accelerating inflation would be the logical result. Example: USA prints more Dollars, first to pay back their debts, and secondly to improve competetiveness of its economy versus China and to lower unemployment rates. But Europe could not tolerate this in the long run and would also have to take counter-measures by "printing" more Euros, thus leading to a spiral of devaluation and world-wide inflation.
Note that gold is still far away from its historical all-time high when adjusting the value by the inflation rate!
History of mankind tells us that all FIAT money currencies (money without intrinsic value, because not backed by gold or so, i.e. all of today's currencies) sooner or later returned to their intrinsic value, which is zero. Why should it be different with today's currencies?
The big central banks of the world, e.g. in China, India, Russia, have realized this, too. But they are sitting on big amounts of Dollars (and Euros), which run danger of becoming worthless. Hence, theses banks are just in the process of successively piling up their gold reserves.
Many financial experts expect a new financial crisis soon, being even bigger than the last one of 2008. This would once more affect the share markets and push the investors into gold etc.
... etc., etc., I do not want to go into too much detail - there are many web sites out there dealing with this......
There are many good reasons for having a good share of one's investments in precious metals like gold, silver, platinium or palladium. In this context, gold plays a special role, because it is of least relevance for industrial use. Hence its value is largly decoupled from economic ups and downs and varying industrial demand (like e.g. impressively demonstrated by the charts from 2008 during the world financial and economical crisis). Instead, gold has historically always acted as a universal currency with its stable intrinsic value. Many experts recommend to have between 10% and 20% of one's investments in gold, as part of a good portfolio diversification.
Buying Gold: How, and in which Form?
If we have now come to the conclusion that it makes sense to have a certain share of our investments in gold, then we immediately find ourselves asking: How exactly am I supposed to do that?
Well, there are a number of options:
Buying physical gold, e.g. at the local gold dealer, the bank around the corner or an internet dealer, and then store it in a deposit at home?
--> Problem: Safe storage (theft), high costs for aquisition (transport, dealer's margins etc.) and (home-)insurance, remaining risk of theft during tranport e.g. from the gold dealer to your home. Moreover, very unflexible due to the high logistical efforts involved, high fees and high risks of theft during each transaction (of course less relevant if you only make a one-time investment).
Buying physical gold and storing it in a bank safe isn't much better (renting fee for the safe, insurance etc.).
Buying index certificates or ETCs (Exchange Traded Commodities) on gold on the stock market e.g. via my online broker?
--> Easy to buy and sell, like with shares, and you participate with the development of the gold price. But you do not aquire any physical gold but just a paper (bond) of the issuer. If the issuer becomes bankrupt (which can even happen to the largest banks today as we all know), the investor's money is gone (issuer risk). Even if the ETC is backed by physical gold, this is true (except maybe for some special constructs, which are quite complicated though and may still have some hidden risks - I am not a lawyer though...).
--> Index certificates for gold are sometimes "hedged" for a certain curreny. For example, the certificate may run on EUR, but still the certificate participates in the ratio "Gold/USD" and not "Gold/EUR". This means that the certificate's value may increase (decrease), even if Gold/EUR remains unchanged, as long as the value of EUR increases (decreases) vs. USD.
--> Examples: Hedged index certificate, issuer Deutsche Bank, no management fees: ISIN: DE000DB0SEX9, WKN: DB0SEX; or hedged ETC, issuer Deutsche Bank ETC, management fee 0.45% p.a.: ISIN: DE000A1EK0G3, WKN: A1EK0G.
Buying ETFs (Exchange Traded Funds) for gold on the stock market?
--> They work very similar to ETCs, but are fully backed by physical goldand are fund assets, i.e. in case of bankruptcy of the issuer the investor's money is protected. Hence, no issuer risk. Like index certificates or ETCs, also ETFs may be hedged. When buying a share in an ETF, the investor does not own physical gold, but aquires shares of a fond. To understand an ETF exactly, one has to read the fond prospectus. At present, swiss banks that issue ETFs on gold (or also silver, platinium, palladium) are the Zürcher Kantonalbank (ZKB), Julius Bär, Credit Suisse and UBS. Usually, it is contractually assured that, upon the investor's request, gold shall be deliverd to the investor (against some fees of course), but only in very large units of CHF 200,000 or 12.4 kg bullions (=400,000 EUR for a gold price of 1000 EUR/troy ounce). So this is rather a theoretical option for the private investor. Management fees are 0.3%-0.4% p.a. Further fees are those of the bank or broker etc.
As far as the backing of the fond by gold is concerned, the different ETF issuers are apparently differently transparent: Some show in which vaults the physical gold is located and which are the bullion serial numbers, whereas others do not provide this information, such that the investor in the end has to have more trust in the integrity of the issuer.
A further risk could be the missing insurance of the physical gold. Upon loss of parts of the physical gold the ETF may loose value unless it is insured which apparently is not or not completely the case.
--> Some examples of ETFs on gold:
- ZKB: ISIN: CH0024391002, WKN: A0JJ5M, management fee 0.4% p.a.
- Julis Bär: ISIN: CH0044821699, WKN: A0RK1E, management fee 0.4% p.a.
- UBS: ISIN: CH0106027151, WKN: AUEUIH, management fee 0.3% p.a.
- Credit Suisse: ISIN: CH0104136236, WKN: A0YCNA, management fee 0.3% p.a.
Buying Physical gold from BullionVault?
--> Here you are buying physical gold (or silver) that you are directly owning. Therefore, there is no issuer risk in case of bankruptcy of BullionVault or any other company. The gold resides in one out of three vaults (Zurich, London or New York), depending on your choice, and is completely insured [b.t.w., also silver with vault in London can be bought here]. The smallest unit of gold that can be bought is 1 gramme =1/31.1035 ounze (=43 USD at a gold price of 1350 USD per troy ounce, or 32 EUR at a gold grice of 1000 EUR per troy ounce). All gold is available in the shape of "good delivery" 12.4 kg bullions, of which one posses a certain share. Physical delivery is also possible (for a certain fee), but only in units of 12.4 kg bullions (=400,000 EUR at a gold price of 1000 EUR/ounce), which is therefore a rather theoretical option for the private investor. One can also reserve a special bullion in a vault personally, if one owns at least 12.4 kg of gold.
The fees amount to 0.12% p.a., but minimum 4 USD per month = 48 USD p.a. [silver: 0.48% p.a., min. 8 USD/month], i.e. from ca. 12,000 to 15,000 USD one pays less fees than for ETFs. The buy/sell commissions are 0.8% for the first 30,000 USD per year, afterwards reduced to 0.4%, and from 60,000 USD p.a. further reduced from 0.1% to 0.02%. That's all about fees.
--> There are no fixed minimum order fees, such that also trading a single gramme of gold makes sense.
--> The online ordering platform of BullionVault.com is very well-designed.
--> More details on the page Who is BullionVault? and Comparison: ETF vs. BullionVault, both also reachable from the links at the top of this page.