Frequently Asked Questions About Other Gold Investment Options

Gold bars manufactured in Hungary by BAV, Metalart and the Hungarian Mint (2004-2015)

Is it better to buy jewellery or investment gold?

Jewellery includes a fabrication premium and VAT, so it does not substitute for investment gold. If, however, one is able to acquire jewellery at scrap gold prices, it is also worth considering it as an investment.

Why is scrap gold a poor investment?

Scrap gold purchasing is a sensitive topic: considerable expertise is required, which is why beginners are advised against buying scrap gold "at the market" or from private individuals, as there are many tricks involved. Moreover, even if we manage to buy it cheaply on a per-gram basis, investment gold is still worth a few percent more, because the cost of converting scrap gold into investment gold must be taken into account.

Is physical gold or a bank deposit better?

When we place a sum in a bank deposit, the bank will lend it out to a business or to an individual in the form of a personal loan. If, as the economy deteriorates, the companies and individuals who took out loans go bankrupt, the bank itself is also at risk and may be unable to repay our deposit. In that case, we can only rely on deposit insurance or the state stepping in as a rescuer. Gold, by contrast, carries its value intrinsically, and if we are in possession of it, we can count on its ability to preserve value even in a crisis. Holding physical gold alongside bank deposits is therefore absolutely warranted.

Paper gold versus physical gold

The precious metals dealing industry refers to securitised gold investment products as paper gold. These are so-called gold ETF or ETP securities, which may be backed by physical gold or may simply track the exchange-traded gold price. Their advantage over physical gold is that buying and selling them is straightforward through a brokerage or bank securities account. Their major disadvantage, however, is that they lack precisely the "built-in protection" we expect from a physical gold investment. In other words, if problems arise in the banking system and the brokerage firm or bank where our paper gold is held goes bankrupt, we can only rely on investor compensation schemes.

In reality, therefore, paper gold is worth investing in only if we wish to enter a speculative position on the gold price. If we also require the safety reserve function that gold provides, then only physical gold investment is a viable option.