What is the cost of investing in gold?
News Arnulf Hinkel, financial journalist – 18.05.2018
For the second time, after 2012, the Research Center for Financial Services of Germany’s Steinbeis University Berlin has conducted its "Transaction and Distribution Cost Analysis Gold" on behalf of Deutsche Börse Commodities. The study takes into account some changes in offerings and framework conditions for investment opportunities in gold. It covers four different ways to participate in the performance of gold: the direct purchase of bullions or gold coins, the purchase of physically backed ETFs or ETCs with or without investor's entitlement to redemption, and other securities such as certificates or ETCs without physical back-up.
A comprehensive cost analysis covering numerous aspects
The study extensively analyses transaction and distribution costs incurred with the four different investment opportunities, e.g. by weight in connection with the respective transaction opportunity, by investment volume/transaction size, by holding period and chosen custody option, and taking into account the cost of physical redemption of paper gold.
Revealing results with high practical relevance
Purchasing physically backed ETCs or ETFs offers the most cost-effective way from as little as 10 grams of gold. With an even smaller amount of gold, buying bullions is actually the preferable option. When it comes to a more extensive gold investment (approx. 1 kg), purchasing a physically backed ETC or ETF including later redemption is more cost-effective than buying bullions. Said instruments are also preferable for short- or medium-term gold investments. Provided hedging a gold-price-tracking security with physical gold does not seem vital for an investor, gold certificates are the most cost-effective choice. However, in this case, the risk of a total investment loss is by far the greatest.