Counting the Cost of Gold

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Gold Bars stacked
Gold bars created by Agnico-Eagle. Gold is the ultimate store of value. It has the tendency to stay strong in the face of inflation, uncertainty, or currency devaluation. As central banks around the world continue to increase the money supply in today’s economic climate, investors continue to turn to gold as a safe haven for their investments. Image via Wikipedia Creative Commons

Written by: John David Bailey, Financial Consultant  at  ACUMA Independent Financial Advice

Gold is no stranger to this region.  In fact, it is fair to say that due to cultural evolution and Dubai’s envy as a trading hub, buying gold in the region is something that Dubai is known throughout the globe for with people coming far and wide to dabble and look for exotic bargains, from the world-famous array of shopping malls, to the traditional souks that meander the streets of Deira and beyond.

Gold has seen exponential growth, especially over the last decade and the patterns for buying gold have changed from traditional and fashion, to the safe alternative investment.  With this, buying habits of consumers have changed from simply buying jewellery to purchase of physical gold coins and bars with much speculation about the price of gold and safe haven status.  It is perhaps with little surprise in this case that UAE’s latest phenomenon continues to pave the way…

Just over 18 months ago, Dubai saw the introduction of the first ‘Gold ATM’ whereby passing investors can insert their cash for physical gold – something that perhaps needs to be seen to be believed. Arabian Gazette had earlier reported that since inception a staggering $7 million USD of gold have been purchased in this time period using Gold ATM’s.

Potential investors can purchase 24 carat items ranging from 1g – 1oz bars and prices are updated via a tracker every 10 minutes and the purchase is immediately available, with items available in ‘branded bars’ shaped for example as the Burj Khalifa to ensure little or no mistake about where the items come from.

The gold debate

Whilst the gold debate is always speculative at best, it will no doubt always be a talking point.  Investing in gold or anything else for that matter is something that should be carefully considered and I can’t help that think that this encourages just the opposite.  Indeed, Dubai is also well known for its lifestyle and often lavish spending habits, and the more accessible something becomes, the more chance people will buy it, something that has not gone un-noticed with the vendors operating the machines.

Already in the Emirate, there are plans to bring 15 of these machines put at high end, strategic locations around the city and the popularity has seen this grow from an idea to a global business with machines now featuring in many cities worldwide.  This has now grown into a multi-million dollar industry, a far cry from the original prototype systems installed in Frankfurt in 2009, where only 1 gram pieces at 30% above the market value were dispersed, and with credit card payment methods being introduced on some of these machines, you have to look at if this could encourage reckless spending in the region…

Before you take the plunge…

Whilst Gold ATM’s are an interesting concept, and probably still geared towards the novelty buyer as opposed to experienced investor, there are a few things I would recommend considering before buying any such item being so readily accessible:

1. Buying gold is a physical asset, like buying a piece of art, or a car or a house and like buying any such item, it’s always advisable to do your research and not be tempted by the first offer you see.  There are many places in the region in which you can buy physical gold, so make sure you are getting a fair price and not just buying for convenience.

2. Patience is a virtue: if indeed you are looking to add your first piece of gold to a portfolio or looking to build an investment, don’t expect to make a million overnight.  Most investments should be seen as a medium to long term holding where you can realistically expect to see the price rise over time.

3. Don’t put all your eggs in one basket!  Despite what you may be told, no one knows the future of gold, or any such investment and with that in mind, keep a balanced opinion and don’t put every last penny into one area.

In summary, whilst it may make a great novelty gift or present and give some an opportunity they may not have had access to in the past, if you are serious about looking into buying gold, or any such investment, do your research; take advice from friends and family who have invested, or speak to a financial professional who can give you a balanced opinion based on your circumstances.

The folks at Visual Capitalist has come up with a good infographic ‘Gold as an Investment‘, revealing some interesting facts like how investing in Gold helps in diversifying one’s portfolio, factors affecting gold prices and the different ways to get exposure to gold in a portfolio.

Gold as an Investment Infographic
Gold as an Investment Infographic. Image credit-VisualCapitalist
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