As the price of gold climbs, now may be the perfect time for investors to enter the gold space.
Australian market participants 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 region.
Australian gold investing: The region
As mentioned, Australia is currently the second largest gold-producing country across the globe.
Gold production in the country reached 310 metric tons (MT) in 2018, up from 301 MT the previous year. In 2019, Australia is expected to produce an estimated 10.7 million ounces of the yellow metal.
“There’s three countries that combine the rule of law with significant gold production: Canada, USA and Australia. Outside of these three, there’s not much gold, or there’s not much protection for individual investors and companies,” Kevin McElligott, managing director, Australia, at Franco-Nevada (TSX:FNV,NYSE:FNV), told the Investing News Network (INN) via email.
“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.
“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.
Recent exploration activity in the Pilbara region of Western Australia has renewed interest and helped increase the country’s consistent gold output. While the Pilbara region is typically best known as one of the world’s largest producers of iron ore, the region 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).
In fact, gold mining is the fourth largest commodity sector in Western Australia, behind iron ore, crude oil and liquified natural gas, with a value of approximately AU$10 billion.
The Fraser Institute recently named Western Australia one of the best mining jurisdictions in the world, second only to Nevada. The area has attracted major miners like Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO) and BHP (ASX:BHP,NYSE:BHP,LSE:BLT), and it covers more than half a million square kilometers.
Western Australia represents close to 70 percent of the country’s total gold output, and some geologists have compared the geology of the Pilbara Craton with South Africa’s Kaapvaal Craton and Witwatersrand Basin. 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.
Recently, several gold exploration companies have moved into Pilbara, including De Grey Mining (ASX:DEG,OTC Pink:DGMLF), NxGold (TSXV:NXN), Kairos Minerals (ASX:KAI,OTC Pink:MPJFF), Pacton Gold (TSXV:PAC,OTC Pink:PACXF) and Monterey Minerals (CSE:MREY,FWB:2DK).
Major mining companies like Kirkland Lake Gold (TSX: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.
Australian gold investing: Physical gold
What is physical gold and how do you invest in it?
Physical gold investors are generally looking for items that are 0.999 fine. Several products fit this description, and gold bullion coins are one of the most preferred options. Global examples include the South African Krugerrand and the American Gold Eagle.
Another option is gold rounds, which are similar to coins, but are not legal tender. Both gold coins and gold rounds come in various sizes, usually ranging from a tenth of an ounce to 1 ounce, though other less common sizes are available.
Gold bars are another popular option. They also come in a variety of sizes, and as choices can range from a 1 gram bar to a 400 ounce bar, this product category can accommodate a range of investors.
When the objective is to get the most metal for the least money, it’s generally best to shop for gold rounds and gold bars, which tend to be cheaper than gold coins of the same weight. The premium for gold coins is higher because of the credibility that they receive from being fabricated by government mints and because of the detailed designs they have on them.
Another factor that may need to be considered is the amount to be invested. Large investments may be best made in bars since larger sizes are available. Further, it is often easier to manage large products than it is to manage an array of smaller gold items.
However, physical investors need to also give forethought to occasions when they may want to sell their gold. Large products will require liquidating a larger portion of one’s gold portfolio, and such products may be more difficult to sell in some instances. Individuals making ongoing or significant investments may therefore want to consider purchasing gold in various weights.
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, when it comes to selling, many industry experts suggest holding onto the metal for up to 10 years to turn a respectable profit.
Types of Australian physical gold
- Australian Kangaroo Gold Bullion Coin: A gold coin from the Perth Mint containing 1 troy ounce of 99.99 percent pure gold.
- Royal Canadian Mint Maple Leaf: Similar to the coin from the Perth Mint, it contains 1 troy ounce and is 99.99 percent pure gold.
- American Gold Eagle: A gold bullion coin from the US Mint. One troy ounce of gold at 99.99 percent purity.
Minted bullion bars
- Kangaroo Minted Gold Bar: One troy ounce with 99.99 percent. Other minted bars to consider should come from reputable refineries, such as PAMP or Argor-Heraeus.
- Kangaroo Mint 100 gram Minted Gold Bar: Contains 3.215 ounces of gold at 99.99 percent purity. Other refiners, such as PAMP or Argor-Heraeus, offer similar products.
- Perth Mint Gold Cast Bar in 1 ounce, 10 ounces or 1 kilogram. Each cast bar contains 1 troy ounce, 9.99 troy ounces or 32.148 troy ounces, respectively.
It is worth noting that cast bars don’t have to come from the Perth Mint. These bars can be purcahsed from any reputable bullion dealer in Australia.
How to store physical gold
Determining the best storage option involves weighing risks against costs. Paying for secure storage eats into profits from the metal’s gains, so some people choose to store their gold at home or in their office. In theory, that is the riskiest option as it involves the highest potential for loss due to theft or disaster. But in many instances these risks are not substantial enough to justify the cost of other storage options.
Investors who have significant quantities of gold or whose circumstances involve elevated security risks should consider securing the metal in a depository or safe deposit box. Investors who do so should note that rates vary, so bargain hunting can pay off.
Another thing to note is that some banks do not technically permit the storage of bullion; this is listed in the terms and agreements that customers are required to sign. Private investors who reside in Australia should also keep in mind that physical gold can’t be insured.
Australian gold investing: Gold ETFs
What are gold ETFs and how do you invest in them?
Although exchange-traded funds, or ETFs, have existed since the 1990s, their prevalence in the market became most notable in the early 2000s.
Gold-focused ETFs became popular as a result, and they remain a good option for investors who want exposure to the precious metal without personally trading physical gold, gold futures or gold stocks.
Like all other ETFs, gold ETFs act in the same manner as individual stocks, meaning that investing in a gold ETF is similar to trading a stock on an exchange.
There are two main types of gold ETFs: those that track any price changes that the metal goes through and those that deal with investing in gold companies.
ETFs that follow the price of the yellow metal give investors access to gold by holding either physical gold bullion or gold futures contracts. It is important to keep in mind that investing in these gold ETF platforms does not allow investors to own any physical gold — even a gold ETF that tracks physical gold cannot be redeemed for actual gold.
Meanwhile, ETFs that invest in gold companies provide exposure to gold mining, development and exploration stocks, as well as gold streaming stocks.
Benefits of investing in gold ETFs
As mentioned, gold investors have plenty of options for getting exposure to the yellow metal, including investing in gold bullion, gold futures and gold stocks. But gold ETFs are often considered a lower-risk investment and have a number of benefits for market participants.
For example, physical gold is known for being a hedge against economic and political uncertainty, and owning shares of a physical gold ETF provides investors with this same security — without the hassle of buying and storing the yellow metal.
The spot gold price can be volatile, and investors may want to take advantage of its price movements. Gold ETFs can suit that purpose, but it is worth noting that if an ETF shows a markedly different return than the spot price of gold, chances are the fund has exposure to more than gold bullion alone.
Gold ETFs that track gold companies give investors access to multiple companies in the space, meaning that they do not have to choose specific stocks. This is an appealing option for those who want exposure to the sector without having to make minute decisions.
Gold ETFs as a whole also offer security in that they are managed by yellow metal experts, so there is a better chance for most investors to make a profit. Of course, it is important to keep in mind that, despite their less risky nature, gold ETFs are still affected by the rise and fall of gold prices.
Mutual funds are often compared to ETFs, but in the case of gold ETFs, there are some tax advantages that make them more desirable than traditional mutual funds. ETFs typically garner fewer capital gains when compared to mutual funds, because there is no necessity that ETFs sell the underlying securities in order to finance investment inflows and outflows. Due to this factor, those who hold gold ETFs over mutual funds will generally owe less come tax time.
Lastly, due to the fact that mutual funds can only be bought or sold at the close of the trading day, gold ETFs become more beneficial as they can be traded whenever the stock market is open, meaning movement is more free and not tied down by the end of day trades.
However, McElligott warned that there are still certain fees attached to ETF investing, telling INN, “ETFs actually costs you money in annual management fees.”
Australian gold investing: Best gold ETFs
There are currently three 100 percent gold-backed ETFs in Australia that investors should look at investing in. Read on to learn about them.
1. ETFS Metal Securities Australia (ASX:GOLD)
This ETF has been listed on the ASX since 2003. With this ETF, one share represents about a tenth of the spot gold price. This is to say that if you buy one share of this ETF, it will cost close to 10 percent of the Australian dollar gold price per ounce. 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.
2. ANZ ETFS Physical Gold ETF (ASX:ZGO)
This offering has been listed on the ASX for only a short time, since 2015. Unlike the previous ETF, one unit of the ANZ ETFS Physical Gold ETF is approximately a hundredth of the gold price in Australian dollars. So if the spot gold price in Australian dollars moves up by a dollar, the value of each share will only increase by a cent.
It is important to note that both of these ETFs trade the spot gold price in Australian dollars.
3. BetaShares Gold Bullion ETF (ASX:QAU)
The BetaShares Gold Bullion ETF is unique from the other two ETFs as it tracks the US gold spot price. Essentially, investors are able to garner “purer” exposure to the US spot gold price.
BetaShares units are equal to a hundredth of the US spot gold price. Again, that means that a movement of a dollar in the US spot gold price is equal to a movement of a cent in BetaShares.
Don’t forget to follow us @INN_Resource for real-time updates!
Securities Disclosure: I, Nicole Rashotte, currently hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Monterey Minerals are clients of the Investing News Network. This article is not paid-for content.
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.