Investing in Gold

From Investing in Gold

Investing in Gold Bullion in Canada

Not only do we buy your old gold, but we also sell it in bullion form. Learn more about investing in gold bullion in Canada in this short video.

Stirling: and you also by the way Greg; sell gold and silver coins in bars and such, it’s not all your  … it’s a two-way street as far as Vancouver  Gold is concerned. You buy gold and a lot of it and other precious metals but you also sell it.

Greg: Sure, yeah – with the price of gold in Canada on its trajectory, lots of people becoming interested in investing in is well on they say you know if it’s going to keep on going up then … maybe it’s a good investment so we do sell it uh… in bullion form and coin so that the maple Canadian maple leafs that you mentioned … people can buy gold bars and silver as well, lots of people are investing in silver nowadays.

Stirling: There’s an interesting tax issue, attached to buying gold, Charlie.  If you buy one hundred percent pure gold like a Canadian maple leaf gold coin, it’s not taxable. If you buy an American gold coin, well of an ounce it’s taxable.  Why? Is it because it’s foreign or because the gold content?

Charlie: Yeah, first of all that’s just sales tax, you’re still capital gains tax can still be, you know, assessed on those pieces.

Stirling: .. at the point of sale

Charlie: Exactly, yeah.  Anything in Canada, anything less than ninety nine point five percent pure is subject to sales tax. So that includes jewelry and that’s the main reason, so people can’t get around that tax but it just so happens that a lot of these other kind of investment coins like the American eagle coin.

Stirling: .. and the Krugerrand – South Africa, right yeah?

Charlie: Those ones they are twenty two karat or ninety one percent pure, so they would be subject to sales tax. It’s not just that it’s American; you can buy American coins the American buffalo is that a pure gold American coin, so you can buy that here as well. We don’t see anywhere near as many of those as the Maple Leafs.  So the pure gold bars and coins are what you what we would definitely recommend for investing in gold.

Stirling:.. and the better business bureau again; more stuff that I’ve cribbed from your website,  the best better business bureau says be smart about this. Keep up with the prices. Know, at least have a feeling for what today’s prices are, when you walk in today so that  you’re not alien to the process.

Investing in Gold Factors

Investing in Gold – Factors That Influence the Price of Gold

Understanding the factors that influence the price of gold is crutial before making an investment in the precious metal. Equally important is to be aware of the key differences in the supply and demand of gold compared to other investments such as commodities, stocks and bonds.

Another factor to keep in mind; gold is not the only precious metal to consider when making this type of investment. Silver, Platinum and Palladium are also highly sought-after as investment vehicles, offer similar fundamentals to gold, but each have their own unique characteristics as an investment.

Factors Influencing the Price of Gold Bullion

The value in a gold coin or gold bullion is found in its precious metal content. While gold is pretty to look at in just about any form, when sought after for investment purposes its aesthetic appeal is not usually a consideration. Because of this, the value of gold bullion is tied directly to the market price for gold, and will fluctuate as the market moves, just like stocks, bonds and commodities.

How to Measure the Price of Gold

When quoting the price of gold, most business reports will show the price per troy ounce in US dollars. If you are following the market from outside the US, make sure to convert this price into your home currency, and know that one troy ounce is equivalent to about 31.1 grams.

Also note that the price quoted on the market is always for pure gold. Most jewelry is much less than pure (usually between 40-75%), bullion and coins however, are usually fairly high purities (above 90%).

With an understanding of the mechanics behind the price of a physical sample of gold, you can start to look at the market forces that cause the wide daily swings in price. They are listed in order of their impact on the daily price of gold.

1. Macroeconomic Data

By far the most influential metric on the price of gold is the daily economic information coming out of the worlds markets. Gold has historically always been a “safe haven” type of investment. Like real estate and cash, it is a place to put your money if things aren’t looking good elsewhere. When money is pulled out of the stock market it generally flows towards these types of investments, but in 2008 when the stock market and the real estate market experienced simultaneous crashes, gold seemed like the only safe play and, in turn, began its dramatic gains in price.

2. Inflation Pressure

Inflation is the theory that over time, the value of money will always go down as prices go up. While the average price of a house isn’t $40,000 like it was in 1975, the number of gold bars it would take to buy the same house is pretty consistent: $40,000 worth of gold in 1975 would be worth a little over $310,000 today.

This means that no matter what the market is for gold, in the long run it’s always better than holding cash without earning any interest on it. While gold doesn’t pay interest, its price does generally track the rate of inflation or better.

3. Supply and Demand of Gold

Supply and demand is the main drive of market pricing behind most commodities. While the gold price is much more complex than this basic formula, these factors do come in to play.

The supply of gold is largely dependent on its price, as the cost to mine it has become so high. It used to be quite easy to prospect and mine for gold, with plenty of stories from the gold rush of hitting the mother lode. Nowadays, it’s much more difficult to extract gold in large quantities and requires expensive equipment and technology. Also, since gold doesn’t really get “used up” or consumed the way other commodities do, there is always a large reserve of gold regardless of supply. So unlike most other commodities, the supply of gold will likely continue to be more reactive to its price than to have a direct impact on it.

The demand side is similarly consistent. As the price of gold drops, its demand in the use of jewelry increases (as jewelry is a discretionary spending item), but the investment demand for gold will generally drop as prices move on a downward trend. The reverse is true, of course if prices rise: jewelry demand for gold drops, and investment demand increases.

Future of Gold Prices

Look to the economy and the rate of inflation as the most likely indicators of gold price in the future. Another big recession or a sudden increase in the level of inflation could cause gold to make another big run up. Similarly, if things continue to improve in the global economy and inflation remains in check, gold prices will likely remain fairly stagnant and could even drop a little more.

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Investment Demand for Gold

The demand for jewellery as an investment comes in large part from reputation. While there are no direct factors that link gold prices to inflation, the US dollar, or economic and political concerns, investors’ expectations – as long as enough people believe – are powerful enough to create a relationship.

Bad news about the economy in the US and Europe sent more and more investors to gold as a perceived safe haven. The more investors who bought in, the higher prices rose justifying their purchase and creating a self-fulfilling prophesy. The fundamental problem is that this is the description of a market bubble. The fear is that the market created a pyramid scheme effect whereby the value and use of gold had barely increased but the speculative force caused prices to rise to a point that may not be sustainable in the long run.

Even the types of events that might usually lift prices can sometimes have the opposite effect because of real world supply pressure. The recent fall in prices is partly attributed to the idea that the struggling Cypress might sell their gold reserves to raise money. This comes after part of the previous rise in gold prices having been a result of investors rushing to gold to protect their wealth against the economic troubles in Europe.

My colleague Gregory Neilson recently shared his thoughts on the inflationary pressure that is affecting gold prices, you can read his blog post on gold prices here.