Physical Gold

Characteristics of gold

The original form of a gold investment is owning physical gold, which is also the basis for gold-based investment products like Gold ETF, Gold ETC and other types of gold securities.

Physical gold can be characterized by criteria such as weight, purity and form. In the Western world the weight of precious metals and physical gold’s weight is traditionally regularly measured in troy ounces. 1 troy ounce equals about 31.1 grams.

The purity of physical gold can be measured in Karat or per mill of gold contained. For instance, 999 gold stands for gold, which contains 99.9% of gold. 24-Karat gold has a purity of 99.9% and is called fine gold. 18-Karat gold has 18 parts of gold, while 6 parts (of the in total 24 parts) are a material other than gold.

Physical gold that meets certain criteria, e.g., in terms of purity can be called investment gold. The classification as investment gold can for example impact taxation. In the European Union investment gold in the form of coins requires a purity of at least 900 or 90% while investment gold bars require a purity of at least 995 or 99.5%.

Global stocks of physical gold

Physical gold is used in four different fields:

  • Technology
  • Jewellery
  • Investment
  • Official/ central banks holdings

According to the Gold Survey 2011 by Thomson Reuters GFMS, there were 166,600 tonnes of above ground stocks of physical gold, which were distributed as following:

  • Jewellery: 52%
  • Private Investment: 19%
  • Official holdings: 16%
  • Technology: 11%
  • Unaccounted: 2%

Investing in physical gold

Investors can either purchase physical gold directly or they can buy gold-backed securities.
Physical gold can be bought in the form of gold jewellery, collector’s gold in the form of numismatic gold coins or, e.g., ornamental bars and bullion, or investment gold. In case of jewellery or collector’s gold, the price of the product is not only driven by the gold content but also other factors like scarcity, production effort or aesthetic value.

For the typical investors, bullion gold or investment gold should be the first choice, if they plan to make a financial investment in gold. The reasons are that bullion gold’s price is closest to the price of the gold content and investors do not have to worry about aesthetic value or collector’s value. There are published world market prices for pure gold or gold bullion, which can always be used for calculating the value of gold bullion. In addition, the market for gold bullion is very liquid, i.e., there is the possibility to buy or sell gold holdings close to market prices.

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