Precious metals have always captivated people. They have historically symbolized financial prosperity, not just in the form of jewelry but also as investments in precious metals such as bars, coins, and more.
Experts recommend that individuals allocate funds towards the purchase of precious metals during periods of crisis, inflation, and sanctions. During these times, the value significantly decreases. As the situation normalizes and people's financial conditions improve, demand increases, leading to a spike in prices for precious metals. Significant profits can be realized from such fluctuations, but it is essential to understand the pitfalls of investing in gold and the specifics of working with it.
What should one prioritize? What challenges may arise during the investment process in gold?
To shed light on these questions, we turned to Sergey Tereshkin, the founder of OILResurs, who has extensive investment experience and is familiar with the nuances that are often overlooked by sellers of precious metals.
Features of Gold Investment
Funds can be invested in precious metals through various methods, each with its strengths and weaknesses.
The most popular types of investment include:
- Bars. These come in various weights and can be acquired from licensed banks. Along with the metal, the seller provides the buyer with a certificate detailing the weight and unique number, which matches the information on the gold itself.
- Coins. Rare gold coins, produced in limited quantities, are in high demand among collectors and investors, and can also be purchased at banks.
- Unallocated accounts. In this case, the gold itself cannot be physically touched as it is stored in a bank under a special account for the client. The buyer does not receive the metal directly but rather documentation confirming the purchase. It is crucial to ensure that the bank is reliable and holds a license for such activities.
- Jewelry. Precious items are more of a personal investment. The presence of jewelry often reflects one’s financial status. Antique pieces, in particular, tend to appreciate significantly over the years.
- Scrap. While not the most popular option, purchasing gold from old jewelry or individual components that lack artistic value is still viable. Selling such items at their purchase price is almost impossible; thus, they are often sold as scrap. However, acquiring these can be challenging, especially without connections in the jewelry industry.
These methods allow investors to allocate funds wisely and minimize the risk of losses during a financial crisis.
Potential Pitfalls
Investing in gold may seem straightforward, but it is fraught with challenges. To avoid issues and disappointment, consider the following points:
- It is important to recognize that investments in gold are generally intended for long-term capital growth. Buying today and selling tomorrow for a substantial profit is unlikely. Patience is required, as one must wait for the value of the precious metal to increase.
- Gold prices fluctuate constantly. Avoid the temptation to sell when prices drop, as this could lead to significant losses. This type of investment demands endurance and calculated decisions. After a downturn, there is usually a recovery, so one must maintain composure.
- Banks set their own gold prices, which can sometimes vary significantly. To avoid overpaying, it is advisable to research the market and review offers from various financial institutions to identify the most favorable terms.
- For holdings of gold less than three years, the owner will incur VAT, which may lead to losses rather than profits. This factor should be considered during the purchase.
- Investment coins are exempt from VAT. Therefore, for short-term investments, acquiring these is preferable.
- When purchasing coins, it is best to avoid the smallest denominations as their prices are typically inflated due to production costs. Very large coins should also be avoided as their value remains stable without significant growth, limiting potential profits.
- Proper storage conditions are vital to maintaining the value of coins. Damaged items will likely be rejected by banks or purchased at a significant discount. Similarly, defective gold bars are challenging to sell at their previous price, with banks likely offering only a discount. Thus, all profits may be forfeited.
- When holding gold in an unallocated metal account, there is a risk of losing the investment if the bank unexpectedly ceases operations. Such accounts are not covered by deposit insurance, meaning the state will not compensate for lost money or the metal itself.
- It is advisable to store gold in a bank safe deposit box to prevent theft. Choose a reputable bank with strong security measures that assumes all related risks.
- Buying gold or precious jewelry from unlicensed vendors constitutes a legal violation. This also applies to selling metals. To avoid issues with law enforcement, purchases should be made only from licensed retailers, banks, and companies with official licensing.
According to the expert, opening an unallocated metal account is the optimal method of investment. It is essential to choose a reliable bank and, at the first sign of trouble, to close the account and retrieve one's funds.
