Should I invest in gold?

Bryce: [00:00:31] Welcome back to another episode of Get Started Investing feed podcast, where we attempt to answer the most common money and investing questions from our community to help us all become better investors. Now, if you are joining us for the first time, a massive welcome. We do strongly recommend that you start at episode one. Now, while we are licensed, we're not aware of your personal circumstances. All information on this show is for education and entertainment purposes. Any advice is general advice only. But with that said, let's crack on. My name is Bryce. And as always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:01:03] I'm very good, Bryce. Very excited for this episode and also excited because one piece of housekeeping before we start, we have extended the pre-orders for our merch for one more week. However, because we realised we didn't really speak about it a lot on the podcast.

Bryce: [00:01:20] Okay.

Alec: [00:01:21] And they're selling like hotcakes. 

Bryce: [00:01:25] Nice. That's cool. So when's the closing date? 

Alec: [00:01:29] I guess the end of this week.

Bryce: [00:01:31] Nice. 

Alec: [00:01:32] Yeah. Okay. We have four shirts to choose from. The Black Equity Mates shirt that Bryce and I are both wearing at the moment. And then a white Equity Mates shirt with an embroidered logo. Very high quality. And then two other shirts. One with the FinFest logo and one with the original Equity Mates logo. You and I riding a bull, so head over to equitymates.com/shop. The link will be in the show notes.

Bryce: [00:02:01] Get it done. 

Alec: [00:02:01] Get it done. 

Bryce: [00:02:02] Yeah. Good quality, limited edition, exclusive. 

Alec: [00:02:06] Yeah. 

Bryce: [00:02:07] Three reasons to buy. 

Alec: [00:02:08] And versatile. 

Bryce: [00:02:10] And versatile. Yeah. 

Alec: [00:02:11] Yeah. They also double as a Halloween costume. Wear the shirt, shave your head, and you can go as Ren. Fallaway.

Bryce: [00:02:19] That's it. All right. Well, today, Ren, we continue answering some of the big money questions that are coming through and one that's popped up in the community over the last couple of weeks is around your favourite metal. Gold. 

Alec: [00:02:32] Palladium. Oh. 

EM Community: [00:02:34] Hey, Equity Mates. Just reading a lot about gold. Should I invest? And how's the best way to do that? 

Bryce: [00:02:39] Should I invest in gold? That's a timely question, given what is going on with the gold price at the moment. But we thought we'd spend the next ten or 15 minutes understanding what is understanding if gold is a good investment, why it's making headlines at the moment and then closing out with the question and how you can actually do it. Because luckily it doesn't involve buying physical gold and keeping it as safe. 

Alec: [00:03:08] Yes. Yes. So, Bryce, let's start with why gold is on the tip of so many people's tongues and why people are asking about it in the Equity Mates community. It really starts with price. Gold is had a big run. Gold is priced in US dollars and it's measured in ounces. The US needs to get off that imperial system and come join the rest of the world on the metric system. But right now the gold price is U.S. dollars per ounce and it crossed a big bar, a big psychological barrier. Big number, 2000 U.S. dollars an ounce. 

Bryce: [00:03:42] Yes, all time high hit. it's been on an absolute tear from October 2022. Where in periods of inflation when you would expect gold to be performing. I guess the question coming from the community is how do we actually invest in gold? 

Alec: [00:03:56] Yeah. So there are three ways that you can invest in it. First is investing in physical gold itself. You can buy a physical gold ETF that owns gold or you can just go and buy gold as you have done. 

Bryce: [00:04:08] Yes. Got the old gold ring.

Alec: [00:04:10] That's number one. Buy gold. Number two, invest in the gold price. And so there are synthetic ETFs that use financial instruments to track the gold price. You don't actually own any gold or you're not entitled to any gold, but you should get the returns of gold. So that's number two. The number three is to invest in gold producers. And so those are the companies that are mining gold. You can invest in them directly. Newcrest is a company that comes to mind in Australia. There are also ETFs that track gold miners. So there are three ways to invest in gold itself. Invest in the gold price or invest in gold producers. 

Bryce: [00:04:46] There's ways to think about it, and the best way to think about it is in terms of the role it plays in your portfolio. It's not something that I'm saying. You want to be having a portfolio mix of 100% of gold. But we have had experts on the show who strongly suggest that there is a rule around the percentage allocation that you can devote to gold in your portfolio. And the rule of thumb that we sort of generally hear is that between five and 10% seems to be sort of the maximum amount that you want to be allocating to gold. And then as times change, you can rebalance that accordingly. But that sort of 5 to 10% rule is generally the one that we hear is the good rule of thumb to allocate towards gold. 

Alec: [00:05:31] Nice. I'm going to say I'm going to go a step further in answering the question, Should I invest? Like, that's up to you. But for me, gold is a portfolio, a balancing tool, and not a primary investment. And what I mean by that is I don't think anyone's first investment should be gold. Because what you actually want to invest in are assets that ideally produce cash flow and then can even pay you that cash, i.e. a property that pays you rent or, you know, that stock that pays dividends or a bond that pays you yield or that takes that cash flow and reinvests and keeps growing as a growth stock that's making money and reinvesting in the business like they're there. That's the thing that generates wealth for you. Gold is not that gold is a commodity and it holds its value and it can balance your portfolio if the stock market is falling or if we've got high inflation and the value of your dollar is being eroded. Gold can play a role in providing some balance. And then when times are tough, you can then sell that gold and then use that money that you've got to invest in cash flow producing assets. And so for me, like, that's the way to think about gold. Don't think of it as like a primary investment. Think about it as a balance in your portfolio. Yeah. Do you own gold? 

Bryce: [00:07:05] I actually sold all my gold ages ago. Yeah.

Alec: [00:07:09] The grill's as well. 

Bryce: [00:07:12] I. I did. Yeah. I just felt. I just felt I didn't have an allocation of 5%. I had an allocation far less than that. And I sold out. I did own the gold Global X Gold G-O-L-D ETF. Do you own gold? 

Alec: [00:07:31] Yeah, I do. I own. It's a small percentage of my portfolio. Yeah, but I do. 

Bryce: [00:07:38] Yeah. Nice. All right, Ren. Well, it's time to take a quick break. And on the other side, we're going to explain three ways that you can invest in gold and why two of them are far better than the third. So Ren, we're answering the community question that is coming from Zoe about should I invest in gold? We know that it's at an all time high. But the question is, how do we do it? And there are three ways that as a retail investor, we can invest in gold. Two ways are better than the third. So let's start with the best way to invest in gold. 

Alec: [00:08:16] And I think those three ways can be summarised as investing in actual gold, investing in the price of gold, or investing in the producers of gold. So let's start with actual gold, because that's what we're talking. That's what we're trying to do. There are ETFs on the stock market that offer that are physical gold ETFs. And what that means is that if you spend $100 in buying that ETF, that ETF provider will then take that $100 and actually go and buy physical gold and they'll store it in a vault in London or something. And the ETF is actually backed by physical gold that you can touch. And you actually, as an owner of the ETF, probably will never be allowed to touch it and never get into that bank vault. But there's physical gold that's audited that is its asset. But it's there's gold back in the ETF. 

Bryce: [00:09:11] It's actually there. I think, Ira, I think when we did this a while ago, the question was, can you then go and redeem that bar of gold? I don't think you can.

Alec: [00:09:21] I think there are some I don't think it's ETFs, but I think there are some funds that let you do it. 

Bryce: [00:09:27] You have a claim on the bar. 

Alec: [00:09:28] But I think you need like a certain amount of money. 

Bryce: [00:09:31] Yeah, yeah. You're just getting units in it. But yes, that's how you and I invested in it, Ren, we were invested in. I think you still are invested in the global X gold ETF. The ticker is gold G-O-L-D. There are a number of others listed here in Australia. This is not an exhaustive list, but there's the Vaneck Nugg ETF. N-U-G-G is the ticker. 

Alec: [00:09:52] N-U-G-G.

Bryce: [00:09:53] N-U-G-G. And then there's the Betashares Gold ETF as well. Their ticker is Q A U. Quality bullion. So all of them are backed by gold and track the price of gold. Yeah, through the holdings of the physical asset. 

Alec: [00:10:09] So that's how you invest in actual gold. Now the next one is investing in the gold price. 

Bryce: [00:10:16] Yes. So these are ETFs as well, Ren. But they're slightly different. They are not backed by any physical gold. They are synthetically constructed ETFs that do nothing more than follow the price of it. So you've got to remember that if you're investing in these ETFs, you're actually just taking a position in a fund that tracks the price of gold. There is no physical asset behind it. Not recommended as much as buying an ETF with the physical gold behind it. But they are available. They're they're much more prolific over in the States. You will find that if you're investing here in Australia, you're more likely to come across ETFs that are invested, that have the physical backing of the gold. 

Alec: [00:10:58] So why is it worse to invest in a physical to invest in a synthetic gold ETF compared to a physical one? 

Bryce: [00:11:06] Slippage of price. 

Alec: [00:11:08] Yeah. 

Bryce: [00:11:09] Meaning that you have some you have to actually manage the derivatives that underlie it. There's a lot of jargon there, but it's not necessarily going to track the price perfectly.

Alec: [00:11:20] Yeah, these are just a lot of synthetic ETFs. Try and track the daily movements of price and tracking the daily movements of price somewhat confusingly mean that over time it actually there's a slippage from the long term price movements. Bryce And then that leads us to our third way of investing in gold. The producers of gold. 

Bryce: [00:11:43] Gold miners. You'll often find, not surprisingly, when the gold price is going up, so is the share price of the gold miners. And that is because as the share price, as the gold price goes up, gold miners are going to make more and more money by digging up gold and selling it on the market. So by investing in gold miners, you are linked to the price of gold and you find that the price of gold miners somewhat tracks the price of gold pretty closely. And so if you don't want to invest directly in the price of gold and you want to invest in some of the big gold miners, that's one way that you can get exposure to the price of gold and benefit from the price movement. 

Alec: [00:12:28] Gold Miners are seen as a bit of a leveraged play on gold because you're right, they get the benefit of the higher gold price, but then they're also taking that money and, you know, try to grow their operations, find more gold to mine. And so it's you know, it's potentially higher risk because there's company risk, an execution risk. But then. There's also a potentially higher reward because there's the ability for the gold miners to actually grow their business while also benefiting from the gold price. So it's seen as a higher risk, higher reward way to invest in gold. The main one that gets spoken about in Australia is in terms of ETFs is Vaneck Junior Gold Miners ETF. That's probably the main one I'm familiar with.

Bryce: [00:13:14] If you're thinking about companies as well. The three biggest gold or some of the biggest gold mining companies here in Australia are Newcrest Mining N-C-M is the ticker. Evolution Mining E-V-N, Northern Star Resources N-S-T. Some of that, some of the biggest gold producers here in Australia. 

Alec: [00:13:32] So I've just had a look Vaneck has just a strike gold miners G-D-X is the ticker and then they have junior gold miners G-D-X-J Junior gold miners being a higher risk, high reward than the more established players. So that's probably the three ways to invest in gold itself. Physical gold ETFs, invest in the gold price, synthetic gold ETFs, and then invest in gold miners. 

Bryce: [00:14:01] And you can go to the Perth Mint and pick up a bullion if you do well.

Alec: [00:14:04] Let's not talk about the Perth Mint because of four corners of the talking.

Bryce: [00:14:10] But you can literally buy gold if you would, if you wanted to.

Alec: [00:14:13] You can go to a jeweller and buy gold. Yeah. You bought gold when you got married. 

Bryce: [00:14:17] I got a gold ring. Yeah. 

Alec: [00:14:19] Yeah, yeah. How much is that worth? 

Bryce: [00:14:21] Uh, depends how many ounces it is. Changes every day. 

Alec: [00:14:27] Anyway. So, Bryce, let's put a bow on this episode. We've explained that you can invest in gold through these different ETFs and as the different types of ETFs, we've explained why people invest in gold and how they use it in their portfolio as a way to balance their portfolio, hedge inflation, store of value. So we've explained the how and we've explained the why. What we haven't finished with is this should be the question we set out to ask, should I invest in gold? So should I. 

Bryce: [00:14:59] Well, I mean, you've already spoken to it, which was if it's an individual decision, but if you're 20 years old and you're sitting there going, I want a growth portfolio, you know the reasons why people invest in gold, which is store value, inflation, hedge, it's not a growth asset. It's not it's not something that has historically delivered thousands and thousands of percentage in return. So there are reasons why people use gold in their portfolio. It's often a defensive play or used in times like we are in right now with inflation. So if your goal is to build a growth portfolio that's going to deliver you returns over 40 years, then should you invest in gold? Well, potentially, but just have the right allocation of exposure in your portfolio. Don't have 50% of your portfolio in gold. If your goal is a growth portfolio, if your goal is to preserve as much cash as possible and pay inflation protected, then should you invest in gold? Well, you'd probably consider that a little bit more than someone who's sitting here being like, I want a portfolio that's going to give me dividend returns and growth over the next 20 years. That's kind of how I would answer this should. Yeah, it just comes down to the type of portfolio that you want to build, what your goals are, understanding why you have gold in your portfolio. I thought that answers it. Yeah, hopefully it answers those questions. All right. Well, we will leave it there. Please keep the questions coming. As we said, each episode where answering one major money question, we've got some crackers coming up, including are rewards programs worth it? Rewards points worth it? We will be in the States over the next couple of weeks as we release these get started investing episodes. You can follow our journey as we go to the Berkshire Hathaway AGM and hopefully get in front of Warren Buffett on our Instagram. And please, if you could write in, review the show five stars on the Get Started Investing podcast page, that would be much appreciated. It really does help go a long way to get us in front of new listeners, but Ren, as always, it's been an absolute pleasure. We'll pick it up next week.