Should you invest in gold in 2024? How to invest in gold?

1. Invest in Physical Gold

The first obvious option is to invest in physical gold. It means you buy some actual gold, and you store it. And once you want to sell it, you take it, go to a seller, and get back some money.

Buying physical gold is the coolest way to invest in gold. I mean, who does not want to have gold bars at home? Having physical gold is more tangible than having some paper telling you you have some metal somewhere.

But there are some strong disadvantages to this way of investing in gold.

First, the main problem with physical gold is how to store it. If you have bought a few coins, then you are probably fine on that part. You can store it in a safe part of your house. But if you have invested a significant amount of money, you must invest in a safe at home or a safe deposit box. Securing your gold will cost you money.

If you have a significant amount of gold at home, you may also want to get insurance for this gold. And the insurance is costly.

Second, having gold at home may make you uncomfortable. If you have a significant amount of physical gold, you should consider getting it insured. All this, put together, makes it difficult to invest in gold.

Third, physical gold is not very liquid. To get your money, you have to get the physical gold to a merchant and get your money back. It takes time. And this also means that there will be a significant spread between the buy and sell values.

And if that was not clear, I need to clear out something: buying gold jewelry is not investing in gold! When you buy a necklace, most of its value will be for the jeweler and the shop margin. The rest is the value of the metal. So, when you want to sell it back, you are very unlikely to get back more than the raw value of the metals.

So, investing in gold jewelry is a bad investment. If you want to invest in physical gold, you must invest in gold coins or bars.

Investing in physical gold is an interesting option. But it comes with some essential disadvantages. For this, I would not recommend investing in physical gold unless you want to invest a low amount of money.

2. Invest in physical gold indirectly

The first way of investing in gold was to invest in physical gold. But there is another way to invest in physical gold.

There are some websites where you can buy physical gold that offer storage and insurance. It means you can buy physical gold, and they will store it in their safe in your name. They will also offer insurance for this gold. And in several cases, they provide this service for free.

Here are two instances of that:

• BullionVault
• Gold Avenue

I have not tried any of these websites, but I know people that recommended them to me.

Buying through a platform is a great alternative to buying physical gold directly. If you want to buy some significant quantities, this could be a very good way.

If you invest through these websites, you should do proper research about the website. You want to be sure you can trust the website before investing.

3. Invest in precious metal accounts

The second way to invest in gold is to open a precious metal account in a bank.

Many large banks offer metal accounts. So, instead of having CHF or USD in your account, you have grams of some metal, such as gold or silver. You can buy and sell gold from your main account at the bank.

It is a straightforward way to invest in gold. It is probably the easiest. And it is volatile. You can quickly sell and buy metals from your account. It is also much safer than storing the actual gold at home.

Now, there is a disadvantage to this method: precious metal accounts are not free. And there are many such accounts, even in a small country like Switzerland.

When you choose such an account, you need to look at two things:

• Custody Fees: How much will you pay each year on the value of your portfolio?
• Transaction Fees: How much will you pay for each buy and sell transaction?

For instance, there are the details of three banks for their gold accounts:

• UBS: 1% custody fee, no transaction fees
• Migros Bank: 0.19% custody fee, 0.30% for selling and buying
• Zurcher Kantonalbank: 0.2% custody with 30 CHF minimum

At first sight, Migros Bank has the lowest custody fees but has very high transaction fees. The custody fee of UBS is just too high. The gold account from the Zurcher Kantonalbank is the best one I have found. But the 30 CHF minimum is pretty bad. It means that below 15’000 CHF invested, you will pay more than 0.2%. For large amounts, it is an excellent account.

Investing in a precious metal account is safer than investing in physical gold. But it has some essential costs. It is difficult to say if this is cheaper than investing directly in the physical metal. If you want to invest a significant amount of money in gold, this is a better method.

4. Invest in Gold ETFs

The fourth way to invest in gold is through an Exchange Traded Fund (ETF). Many ETFs are related to the price of the yellow metal. There are mainly three classes of gold ETFs:

1. ETFs that invest in physical gold. These ETFs directly buy physical gold to back the shares. You will not have a claim on physical metal. But the share price will be very closely related to the cost of gold.
2. ETFs that synthetically replicate the price of gold. These ETFs will use some derivatives (futures and contracts) to synchronize with
3. ETFs that invest in gold mining companies (and sometimes related companies). These ETFs are loosely associated with the price of the precious metal since they will generally simply invest in an index of companies.

If you want to invest in gold, only the first class makes sense. The second class will also work, but I do not like synthetic ETFs. Even though with the first class of ETF, there is no claim to physical metal. The ETF holds the physical gold. For me, this makes more sense than the other two classes.

If you already have a broker account, this is a very convenient way of investing in gold! You just have to buy one more ETF, and you are done. If you have no broker account, this is more complicated than purchasing physical bars or billions or using a precious metal bank account.

The safety of this method is also quite high. If you are using a good broker, you should have good security, and your shares will be insured.

There are also two issues with this method. First of all, it is not free. You will pay transaction fees, but you should pay very little of that if you use a good broker. But you will pay management fees in the ETF (like any other ETF). It is the TER of the ETF.

And also, there are tons of ETFs to choose from. The biggest ETF is the SPDR Gold Trust (GLD), with a TER of 0.40%. If I wanted a USD ETF, I would invest in the iShares Gold Trust (IAU) with a TER of 0.25%.

But if you are in Switzerland, you should invest in an ETF in CHF. Gold should be here to reduce the risks of your portfolio. So you do not want to pay the price of having an additional currency risk.

For me, the best CHF Gold ETF is the iShares Gold Hedged CHF ETF (0.22% TER). With this ETF, you will have almost the same prices, a precious metal account, and higher safety. The barrier of entry is also quite low.

For me, investing in Gold ETF is the best way to invest in gold. If I choose to invest in the future, this is what I would do.

5. Invest in Gold Futures

The final way to invest in gold is to use gold futures.

It is the most complicated way of investing, and this is not something I would recommend. But it is interesting to know that this exists. Investing in gold futures is probably much closer to speculation than investing.

A future is a contract to buy or sell an asset at a given price. The price is set when you buy the contract. But the payment will only be settled in the future. Generally, you can buy and sell futures up to three months in advance. By entering a buy future contract, you are gambling that its price will increase. And by entering a sell contract, you are speculating that the price will decrease.

For instance, you could buy a gold future for 10’000$ for 5000$ an ounce in three months even though the price is currently 6000$. Futures are done on margin. So, you will have to deposit some money, maybe 2000$ in this example. The rest is done on margin. If the price goes up to 7000$, you will have bought gold at a 2000$ premium. At this time, you will need to settle the price. But if the price goes down to 4000$, you will have bought gold 1000$ more expensive than it.

The problem with this technique is that it works on margin. Since both parties are investing on margin, you are at risk of default. And since you are investing on margin, your losses can quickly become significant.

Compared to the other techniques, this is the riskiest and most complicated, in my opinion. I would not invest like this.

Retirement of 20 years

First, we start with 20 years of retirement. I will not do ten years since the chances of success are simply too high. With 20 years, it starts getting interesting.

So here are the chances of success with different portfolio allocations.

As expected, a portfolio with only gold would not fare well with any withdrawal rate. Even with a 3% withdrawal rate, which is highly conservative, it would only give you a 95% chance of success after 20 years.

On the other hand, having even a 60% allocation in your portfolio gives you a high chance of retiring for 20 years!

And even more interesting, having 20% gold in your portfolio increases your chances of success with large withdrawals. In this simulation, a portfolio with 20% of gold and 80% of stocks is consistently the best performer.

But for most, 20 years is quite short of retirement. So, we need to run more extended simulations.

Retirement of 30 years

Here is what would happen if you invest in gold and want to retire for 30 years.

The results are already more interesting. Thirty years is already a long time to sustain a portfolio. And we can see that some gold in a portfolio can help the chances of success. Here, again, the best results are achieved, with 20% allocated to gold. It is interesting. And even 40% allocated to gold yields quite good results.

However, we can see that allocating more than that is not great for your retirement unless you plan a very low withdrawal rate.

If you plan a very high withdrawal rate (more than 5%), you should not invest in gold in your portfolio. But this is logical since gold has lower average returns than the stock market. And in any case, retiring with such a withdrawal rate would be risky anyway.

Retirement of 40 years

Finally, here is what would happen for a 40 years retirement.

For such a long retirement to succeed, we need high returns. It is where gold starts to fail. However, having 20% gold still helps in smoothing out the results. But it will not increase your chances of success significantly.

When you plan for your portfolio to last for so long, you want to increase your chances of success. When you are young, it is okay to fail because you can still go back to work and earn some money. But if your portfolio fails when you are seventy and have not worked for 20 years, it may be more difficult. Therefore, it is essential to have proper planning. And it seems that investing in gold could help.

I am surprised by these results. I did not expect Gold to perform so well, honestly. I am starting to understand why so many people invest in gold.