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Times of crisis, which are most usually followed by increased inflation, always re-raise the question of how to maintain the value of acquired money, i.e. how to invest it in the best way. The answer to this question depends on the degree of risk you are willing to take, and as you probably already know, there are more than one option.
However, there is one option which the investors now traditionally opt for in the face of unpredictable circumstances, and that’s investment gold. The investment company Goldman Sachs reminds us that the ideal moment for purchasing investment gold is the moment you realize the importance of such investment, apart from it always being the right moment.
Why investing in gold is a better option than buying real estate?
Although investing in real estate is a long-term profitable investment, you should bear in mind that there are certain limitations to it. Some of them include maintenance costs, the unpredictability of price movement and the inability to cash the property quickly, since real estate is by rule a non-liquid asset.
Savings interest rates are currently low, and under the risk of inflation, whereas government bonds are safe, but also bring low profit. On the other hand, cryptocurrency (such as Bitcoin) carries a potentially high profit, but not without big risk, due to its unpredictability, which is why many compare this type of investment with gambling.
Investment gold has none of the aforementioned flaws. Unlike real estate which captures your money for years and is difficult to sell in the times of crisis, the gold market is very liquid. Furthermore, gold is resistant to recession and political crisis, and according to the words of Milton Friedman, a Nobel Prize winner for economy: “Gold is the only currency which survived all inflations and other negative economic phenomena.”
Investment gold is not directly linked to other assets, such as stocks or bonds, which are affected by inflation. Unlike money which governments can endlessly print, the supply of gold is limited, which is why its price is not affected by the increase of money mass.
Unlike investing in cryptocurrency, the risk of losing value with gold is down to a minimum.
When it comes to possessing investment gold, the only thing you should think about is its safeguarding. While some investors keep gold in their houses, others opt for security safes in banks or firms specialized for gold purchase and selling, which has certain costs.
Gold price movement
In economic and political crises, the price of gold increased, which brought profit to its owners in situations when they needed it the most; in favor of which goes the fact that the price of gold in the past 50 years increased for the average of eight per cent a year. It is often said that gold is the only currency whose value increases constantly.
The price for one ounce of gold has been in constant increase since 2018, with little variation. The greatest value of 2,201 dollar per ounce in the world market was marked in April 2020, during the coronavirus outbreak. In the said period, the price of gold marked a 40% increase. Afterwards, a slight decrease in value followed, which spiked again on March 8, 2022 due to the war in Ukraine. One ounce of gold at that time was worth 2,043 dollars. As it became clear that the war in Ukraine would stay on, the price of gold decreased, and on October 6, 2022 it amounted to 1,716 dollars per ounce.
Since gold has already reached high price levels, financial consultants don’t usually recommend investing in gold to those investors who expect high profit in short periods or to those who aim for speculation. However, if you are planning to invest long-term to 10 or 20 years, gold may be a smart choice.
What is investment gold?
According to the VAT Act of the Republic of Serbia, both natural and legal persons may purchase gold in Serbia, and gold investments are considered to be the following:
– gold cast and minted bars, of mass accepted in the capital market, with the degree of fineness equal to 99.5% or more, and
– gold coins (ducats) with the degree of fineness equal to 90% or more, coined after 1800, which are or used to be a legal payment instrument in the country of origin, and which are usually sold at the price not higher than 80% of the value of gold in the open market, included in the coins. An example of such ducats that can often be seen in our regions is the Austrian gold ducat Franjo Josip, i.e. Franz Joseph.
Ducats have traditional distinctiveness, while gold bars have security ornaments of the manufacturer that are impossible to copy, an identification number and an international warranty which is valid and verified across the world. Each gold bar comes in a hermetically closed industrial packaging.
The majority of gold price is the actual value of this precious metal, but the costs of manufacturing, packing, distribution and packaging are also included, so the average price per gram is lower the bigger its mass is. Gold cast and minted bars may vary in weight, which makes it easier for the investors to invest different quantities of money.
Who are gold investors?
The money invested in gold bars usually originates from dividends, self-employed income, savings or selling real estate and ownership shares in some company. Even the legal persons were not immune to the trend of investing in gold, and they have been purchasing gold more and more frequently from undistributed profit. In such situations, the legal person is designated as the gold owner. Companies usually invest in gold in order to protect themselves from potential economic plunges and inflation.
Private transactions which include gold bars are usually dealt by direct contact between the sellers in the private market or through authorized dealers and financial institutions. The National Bank of Serbia regulates the import, export and trade of gold, but does not directly deal with private transactions.
Tax obligations of investment gold purchasers and sellers
If you are planning to invest in gold bars, it’s important for you to know that purchasing and selling investment gold in Serbia is completely free of tax. However, if the company’s profit increases by selling gold, due to the difference between the selling and purchasing price, this income is subject to income tax at the rate of 15%.
In order to invest in gold in the compliance with the legislation, it is necessary to issue receipts and keep records on all activities related to investment gold. A special rulebook stipulates the manner of conducting payment, transactions and keeping records. The rulebook defines that the tax payer is obligated to keep a special record on the supply, the transactions and the record on the transactions performed through an intermediary. The record must contain details on the investment gold type, quantity and description. The data on the number and date of issued receipts, the name, or the identity of the legal or natural person that investment gold is sold to must also be recorded.
The tax payer is obligated to keep the record on all activities related to investment gold and related documentation until the expiry of the period for VAT assessment and collection. In financial reports, investing in gold is presented according to the invoiced price, i.e. the purchase price or net sales price, depending on which is lower.
The issue of investment gold shortage
The data from the World Gold Council indicates that since 2000 until today, the trend of investing in gold has increased for 12% annually. Interests spike in the face of extreme events, and especially during crises, when the level of uncertainty rises. Such times bring about gold shortages, due to the high demand, and a large number of requests for purchase are impossible to execute.
Future forecast
Rising inflation puts central banks across the world in undesirable positions where they try to keep inflation under control by increasing interest rates. If interest rates became so high that they attract the investors to invest money in savings deposits, the demand for gold could possibly subside.
Still, it’s good to keep in mind that the reasons to invest in gold, except for profit, are its many advantages that make this type of investment less risky. The current global situation is very unpredictable, and in such situations it is best to diversify risk to two or three alternatives since circumstances might change in a matter of only a few days.
