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Interested in investing in gold in Australia? This guide covers multiple ways to enter the market, from physical metal to ETFs to stocks.
With gold sitting near all-time highs, interest is high and investors are looking at ways to enter the market.
Australian investors may want to turn their attention to their own backyard. Australia is currently the second largest gold-producing country in the world, and its western region is a jurisdiction that is increasingly being sought out by exploration and mining companies.
Read on for a breakdown of the Australian gold market, as well as how and why to invest in the area.
Investing in gold in Australia: A major producer
As mentioned, Australia is currently the second largest gold-producing country. Gold output in the country reached 320 metric tons in 2020, down slightly from 325 metric tons the previous year.
"There's three countries that combine the rule of law with significant gold production: Canada, the US and Australia. Outside of these three, there's not much gold, or there's not much protection for individual investors and companies," said Kevin McElligott, managing director, Australia, at Franco-Nevada (TSX:FNV,NYSE:FNV).
"Australia is very similar to Canada in many obvious ways. Large country, small population, western liberal democracy, high standard of living, high international trade, etc.," he added.
McElligott continued, "The difference for Australia is that gold is 12 percent of exports, versus 2 percent for Canada. So the gold producers are more important to the Australian economy, to maintain that high standard of living. There's higher political and social support for gold mining here."
One of the more prolific gold-mining areas of Australia is Western Australia, which accounts for close to 70 percent of the country's total gold output. In fact, gold mining is the third largest commodity sector in the state, behind iron ore, crude oil and liquefied natural gas, with a value of approximately AU$16.63 billion.
The Fraser Institute recently named Western Australia one of the best mining jurisdictions in the world, fourth on the list after Nevada, Arizona and Saskatchewan. The more than half a million square kilometre area has attracted major miners such as Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO) and BHP (ASX:BHP,NYSE:BHP,LSE:BLT).
Recent exploration activity in the Pilbara region of Western Australia has renewed interest and helped increase the country's consistent gold output. The area is currently in the midst of increased gold exploration thanks to a major discovery in 2017 by Novo Resources (TSXV:NVO,OTCQX:NSRPF) and Artemis Resources (ASX:ARV,OTCQB:ARTTF).
Some geologists have compared the geology of the Pilbara craton with South Africa's Kaapvaal craton and Witwatersrand basin. The similarities are significant considering Witwatersrand is home to the Earth's largest-known gold reserves and is responsible for over 40 percent of worldwide gold production.
Both the Pilbara and Witwatersrand are similar in age and composition, sitting on top of the Archean granite-greenstone basement. The Pilbara area hosts numerous small mesothermal gold deposits containing conglomerate gold — mineralization known to hold large, high-grade gold nuggets.
Following on after Novo and Artemis, a number of gold exploration companies have moved into the Pilbara area, including De Grey Mining (ASX:DEG,OTC Pink:DGMLF), Kairos Minerals (ASX:KAI,OTC Pink:MPJFF), Pacton Gold (TSXV:PAC,OTC Pink:PACXF) and Monterey Minerals (CSE:MREY).
Major mining companies like Kirkland Lake Gold (TSX:KL,NYSE:KL,ASX:KLA) have also invested in the region. Kirkland has committed C$56 million to Novo Resources, and its chairman, Eric Sprott, is a well-known resource investor who owns shares in Novo, as well as several other companies in the Pilbara region.
Investing in gold in Australia: Physical gold
Australians looking to invest in the gold space may want to look first at physical gold, which experts often suggest as a secure starting point for entering the market.
In terms of Australian physical gold, investors are able to buy and sell as much as they want, as the government does not place a minimum or maximum on the amount of the yellow metal in one's possession.
However, it's worth noting that some banks do not technically permit the storage of bullion; this is listed in the terms and agreements that customers must sign when they register. Private investors who reside in Australia should also keep in mind that physical gold can't be insured.
Below are examples of the types of Australian physical gold available for investors at the Perth Mint:
- Bullion coins — The mint offers the Australian Kangaroo, a gold coin containing 1 ounce of 99.99 percent pure gold.
- Minted bars — The Perth Mint also gives investors the option to buy minted bars in eight different sizes ranging from 1 gram to 10 ounces. The minted bars are 99.99 percent pure gold.
- Cast bars — The mint describes cast bars as "one of the most cost effective and convenient ways to buy precious metals." These 99.99 percent pure gold bars range in size from half an ounce to 50 ounces.
Investors who don't want to buy physical gold directly from the Perth Mint can also buy from dealers; Australians may also want to consider reputable products like the American Gold Eagle and the Canadian Maple Leaf.
Investing in gold in Australia: Gold ETFs
Exchange-traded funds, better known as ETFs, are another popular way of getting exposure to the gold space. They trade like stocks on an exchange, which makes them easily accessible, but tend to be less risky.
The ASX is home to a number of gold-focused ETFs; read on to learn about a few of the choices available:
- ETFS Metal Securities Australia (ASX:GOLD) — This ETF has been listed on the ASX since 2003, with a management fee of 0.4 percent. With this ETF, one share represents about a tenth of the spot gold price. For example, if the physical gold spot price is trading at AU$1,593.10 an ounce, one share, or unit, of this ETF will be roughly AU$153.
- Perth Mint Gold ETF (ASX:PMGOLD) — The Perth Mint Gold ETF also launched in 2003, but has a much lower management fee of 0.15 percent. This is because its structure allows for lower storage costs. This ETF tracks the gold spot price, but the gold is held by the Perth Mint on the behalf of investors. It also doesn't have the same level of liquidity as ETFS Metal Securities as it trades at about a fifth of its size.
- BetaShares Gold Bullion ETF (ASX:QAU) — The BetaShares Gold Bullion ETF is unique from the two ETFs listed above as it tracks the US gold spot price, providing "purer" exposure to the US spot gold price. BetaShares units are equal to one-hundredth of the US spot gold price. That means that a movement of a dollar in the US spot gold price is equal to a movement of a cent in BetaShares. The ETF has a management fee of 0.59 percent
- Van Eck Vectors Gold Miners ETF (ASX:GDX) — Launched in 2015, this ETF provides diversified exposure to gold-mining companies. While only 13 percent of its holdings are ASX-listed stocks, its top 10 constituents include two Australian companies, Newcrest Mining (ASX:NCM,TSX:NCM,OTC Pink:NCMGF) and Northern Star Resources (ASX:AST,OTC Pink:NESRF). The management fee is 0.54 percent.
Investing in gold in Australia: ASX-listed gold stocks
Finally, those interested in investing in gold in Australia may want to look at gold-mining and exploration companies listed on the ASX. An easy place to begin is with the biggest gold companies listed on the ASX:
The biggest gainers are another solid point to start from:
Finally, those more interested in particular jurisdictions may want to check out these state-by-state overviews of ASX-listed gold companies:
- Gold in South Australia
- Gold in Western Australia
- Gold in Queensland
- Gold in New South Wales
- Gold in Victoria
As with any investment, the key to investing in ASX gold stocks is to keep due diligence front and centre.
This is an updated version of an article first published by the Investing News Network in 2019.
Don't forget to follow us @INN_Australia for real-time updates!
Securities Disclosure: I, Melissa Pistilli, currently hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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