Here's how you can buy gold

There are several ways to gain exposure.

By InvestSMART · 25 Apr 2010

By InvestSMART ·
25 Apr 2010

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There are several ways to gain exposure.

Buying physical gold

The Perth Mint allows you to buy bars of bullion (a 50-ounce bar will make you feel like you're in Goldfinger but will set you back $62,513.77), gold coin (from one twentieth of an ounce to a kilo), or certificates confirming your ownership of gold stored within the Mint's vaults. It's all government guaranteed, just in case someone tries to be Goldfinger for real. Bullion and coin clearly give you a genuine exposure to gold there's no risk of holding something synthetic that's meant to track gold but turns out not to do so but it comes with storage costs.

Exchange traded funds

An ETF is bought and sold like any other share but represents something else often a sharemarket index, for example. You can buy Australian-listed ETFs that track the gold price. One is ETFS Physical Gold, previously known as Gold Bullion Securities; unlike some gold ETFs around the world, this one is backed by physical allocated metal held by a custodian, HSBC Bank USA. It's cheap: the management fee is 0.4 per cent a year.

Gold equities

This involves buying the shares of a gold mining company, such as the two biggest in Australia, Newcrest Mining and Lihir Gold (the former is in the midst of a takeover bid for the latter). Miners are exposed to the gold price but share price movements will depend on plenty of other things chiefly their ability to find it and mine it efficiently. Some mining stocks will perform better than gold over a period of time; others will do much worse.

Gold funds

There are managed funds that invest in gold equities (often with exposure to other precious metals, too). An example is the Baker Steel Gold Fund, managed by the Anglo-Australian investment group Baker Steel Capital and offered in Australia through Select Asset Management. This fund invests mainly in small- to mid-cap equities globally but can put up to half its money in gold/precious metal ETFs, futures and commodities. It charges a 1.89 per cent management fee and a performance fee of 10.25 per cent for outperformance of its benchmark, the FTSE Gold Mines Index.

Gold futures

These are derivatives, which can use leverage (borrowing) to gain exposure to movements in the gold price. Investors need to be sophisticated and experienced before using futures to invest, especially with heavy leverage.

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Frequently Asked Questions about this Article…

What are the main ways everyday investors can buy gold?

You can gain exposure to gold by buying physical gold (bars, coins or certificates), purchasing gold exchange-traded funds (ETFs), investing in gold equities (shares in mining companies), using gold-focused managed funds, or trading gold futures (derivatives). Each route has different costs, risks and levels of complexity.

How can I buy physical gold in Australia and what should I know about costs?

The Perth Mint sells physical bullion bars (for example a 50‑ounce bar noted in the article), coins (from one twentieth of an ounce up to a kilo) or certificates for gold stored in its vaults. Physical gold gives direct ownership and is government‑guaranteed, but it usually involves storage and insurance costs.

What is a gold ETF and which Australian ETF is backed by physical gold?

A gold ETF is bought and sold like a share but represents exposure to the gold price. ETFS Physical Gold (formerly Gold Bullion Securities) is an Australian‑listed ETF backed by physical allocated metal held by custodian HSBC Bank USA, and it charges a management fee of 0.4% a year.

What does buying gold equities mean and how does it differ from owning physical gold?

Buying gold equities means buying shares in gold miners. Examples in Australia include Newcrest Mining and Lihir Gold. Miner share prices are influenced by the gold price but also by company‑specific factors like exploration success and mining efficiency, so they can outperform or underperform the gold price.

What are gold funds and can you name an example available to Australian investors?

Gold funds are managed funds that mainly invest in gold equities and sometimes other precious metals, ETFs, futures or commodities. The Baker Steel Gold Fund, managed by Baker Steel Capital and offered in Australia through Select Asset Management, focuses on small‑ to mid‑cap equities and can allocate up to half its assets to gold/precious metal ETFs, futures and commodities. It charges a 1.89% management fee and a 10.25% performance fee for outperformance versus the FTSE Gold Mines Index.

Are gold futures suitable for everyday investors?

Gold futures are derivatives that can use leverage (borrowing) to amplify exposure to gold price moves. Because of leverage and complexity, the article says investors need to be sophisticated and experienced before using futures, especially with heavy leverage.

What are the cost and counterparty differences between physical gold and gold ETFs?

Physical gold has storage and insurance costs but gives direct ownership and government guarantees (in the Perth Mint example). Some ETFs are synthetic, but ETFS Physical Gold is backed by allocated physical metal with HSBC Bank USA as custodian and carries a relatively low 0.4% annual management fee.

How can company events like takeovers affect gold mining shares?

Corporate events such as takeovers can move miner share prices independently of the gold price. The article notes Newcrest Mining was involved in a takeover bid for Lihir Gold, illustrating that company‑specific news can materially affect gold equities.