There are several types of gold assets available for you to invest in, depending on your holding period, risk appetite, and available funds. Here is HOW to invest in gold online!
In the past, investing in gold was difficult for individual investors. You could buy the actual spot commodity in the form of coins and bullion, or you could speculate in the futures market. Both alternatives were unpopular and expensive for most individual traders. However, investors now have access to several online gold investment options.
There is quite a bit you should know before you dive in. If you want to invest in gold right away, here is a quick guide that can help.
How to Invest in Gold Online in South Africa - Quick Guide
- Research your Gold assets – From gold futures to gold funds and from gold mining stocks to gold mining funds, there are multiple ways to invest in gold today;
- Define your strategy – trading lets you speculate on the price movement; dealing lets you take direct ownership;
- Take your position – create an account with us to start investing in gold online.
For a more comprehensive overview of why, where, and how to invest in gold in in South Africa, follow our in-depth guide below.
Should You Invest in Gold?
Imagine the surprise of the world’s first circumnavigator, Ferdinand Magellan, when upon arriving on the sandy shores of the present-day Philippines in March 1521 after the first-ever Pacific crossing, he was offered a gold bar and some spices by the native king. Gold – it was a store and show of wealth, even there, even then – in the uncharted, uncivilized territory, halfway around the world, half a millennium ago.
Magellan should not have been so surprised. Gold had been “money” for more than 2000 years prior to his time. The first gold coins were struck in about 700 B.C. in modern-day Greece. Throughout recorded history, other assets like weapons, spices, art, metals, and even food have had their day as leading stores of wealth, but gold has endured as the supreme evidence of wealth across all cultures and times.
Little has changed today. Gold competes with other assets – stocks, bonds, real estate, and paper currency among others as stores of wealth. But in today’s changing and ever more volatile world, the value of these other assets may fluctuate more than ever. What is more – paradoxically – in response to volatility, the policies of governments and central banks, to dampen economic downturns and prop up asset prices, may, in fact, make gold more valuable relative to these other assets. The real purchasing power of gold, over the long term, may arise.
Like most assets, the price is determined by demand and supply. Going forward the demand for gold may continue to rise, while supply will remain constrained as it has since the beginning of time.
Ways to Invest in Gold in South Africa
There are several types of gold assets available for you to invest in, depending on your holding period, risk appetite, and available funds. For more options, including buying gold directly visit our dedicated guide.
Investing in Gold through Gold Mining Stocks
There are a plethora of listed gold stocks. Be aware that while a gold company’s stock price is linked to the price of gold, as it represents a major revenue stream, it is not a “pure play” on gold; it’s unlikely that a company’s value will directly replicate the price of gold.
Gold companies can be divided into two generic groups: “Juniors” and “Majors”. Each category has company-specific characteristics that impact its value. Juniors focus on exploration and are riskier than Majors, which typically are already in the mining and production phase. A Junior gold mining stock can be thought of as an option to play on the likelihood of striking gold and getting bought out by a gold Major. Junior gold mining stocks do, however, typically rely heavily on credit, a key risk when credit markets are under duress. In comparison, gold Majors offer the possibility of operational leverage through gold price appreciation. The theory is that costs to produce gold are fixed, such that gold price appreciation expands margins and the bottom line. Such costs have not been fixed – many stakeholders have wanted a piece of the pie, from increased taxation to increased wages. Gold production is also extremely energy-intensive, meaning costs are closely tied to the price of natural resources, such as oil, which has been elevated.
Complicating things further, many companies may not focus exclusively on gold. Some may also focus on other precious metals or minerals, such as silver, palladium, or diamonds. If you invest in these companies, you may end up with a wider exposure to precious metals and minerals than just gold.
Like any company, management will also have a significant impact on the value of a gold mining company’s stock price. Good and bad management decisions can have a larger impact than the price of gold and in some instances may make or break your investment. Make sure you know enough about a company to make an informed decision before investing in stocks.
If these reasons have you interested in adding gold mining stocks to your portfolio, a few top companies to consider are Barrick Gold Corp (#ABX), Newmont Mining (#NEM), Agnico Eagle Mines Ltd (#AEM). Franco-Nevada (#FNV), New Gold Inc. (#NGD), AngloGold Ashanti Limited (#AU), Gold Fields Limited (#GFI). Kirkland Lake Gold Ltd. (#KL), Kinross Gold Corporation (#KGC), and Freeport-McMoRan Inc. (#FCX).
Do not have the time to research, but still want to invest in gold mining stocks?
ThematiX blends the world’s top trending stories & topics of interest into stock portfolios. Gold Rush ThematiX is a basket of selected shares from companies that engages in the acquisition, exploration, and development of gold worldwide. The weight of each share, (percentage allocation) to ThematiX is determined based on their market capitalization. You can trade these Companies' shares as a single CFD product with the Gold Rush ThematiX
Gold Rush ThematiX is comprised of a group of gold shares such as Barrick Gold (23%), Newmont (20%), Franco Nevada (18%), Silver Wheaton (12%), Agnico (10%), Kirkland LG (10%), and Kinross Gold (7%).
Most could benefit if gold prices rally, so open a brokerage account to learn more about them and start investing.
Investing in Gold through Gold Mining Funds
Like gold stocks, gold mining mutual funds and gold mining Exchange-Traded Funds (Gold Mining ETFs) are not a “pure play” on gold, but rather invest in a broad basket of gold mining companies. This makes it easier to access a wide range of gold mining companies with one investment. Many will focus specifically on gold Juniors or Majors, as described above. Most Gold Mining ETFs and mutual funds are easy to purchase directly through an online broker.
The manager of the Gold Mining ETF or mutual fund makes all the investment decisions independently, so there is no need to research companies. For this convenience, Gold Mining ETFs and mutual funds charge an expense ratio. The expense ratio is lower for Gold Mining ETFs because they often aim to track a static basket of gold stocks. On the other hand, mutual funds typically offer active management, rotating in and out of select securities as the manager deems appropriate. For this reason, mutual funds’ expense ratios are typically higher, and some may also charge front-load and/or back-load fees in addition to an annual expense ratio. As with any investment product, make sure you are aware of all fees before investing.
Overall, when considering an investment in gold stocks or gold stock funds, you should understand that neither will give you direct exposure to the price of gold. Instead, you will gain exposure to a company or companies that operate in the gold mining industry.
Traders can play individual gold miners profitably if they do their homework, but sector exchange-traded funds (ETF) offer an easier alternative, with broad exposure to the industry at different capitalization levels.
A few top mining funds to consider are gold bullion ETFs such as Direxion Daily Junior Gold Miners Index (#JNUG), Direxion Daily Gold Miners Index Bull 3X, Shares ETF (#NUGT), and VanEck Vectors Gold Miners ETF (#GDX).
Investing in Gold through Gold ETFs
By owning shares in an exchange-traded opened gold trust, you have fractional ownership in the underlying gold. The trusts are called open-end because gold shares are issued and redeemed to accommodate investor demand. As a result, open-end trusts closely track the price of gold. There are several options available with low expense ratios. Different funds may hold physical gold in various locations – from London to New York, even Singapore.
If a key priority of yours is to invest in physical gold, but like the convenience of investing in gold through an exchange, make sure that is clearly stipulated in the fund’s prospectus to ensure the trust uses no derivatives. If you are interested in taking delivery of the physical gold, make sure you are aware of any limits imposed before you invest, as some funds may set high requirements that could preclude you from accessing the underlying gold you own. These details can be found in any fund’s prospectus.
Overall, open-end gold trusts may offer an effective and inexpensive way to invest in gold.
Investing in Gold through Spot and Futures Markets
Of all the ways to invest in gold in South Africa, the riskiest is trading the spot and futures prices, a form of speculative investing. Spot markets have low spreads but overnight fees. They don’t expire. Futures markets have higher spreads but no overnight fees. They expire on a set date in the future. This makes spot markets more attractive to day traders, and futures markets more attractive to longer-term traders.
You can trade both spot and futures with CFDs (contracts for difference). You do not actually own the underlying asset. Instead, you buy or sell a number of contracts according to whether you believe the price of gold will climb or fall in the future.
Both are traded using leverage, which means you will put down a deposit (percentage of the value of the trade, usually 5% for Gold) to get started. This deposit is called margin.
Every point the price of Gold changes in your favor multiples your gain based on the number of CFD units you have bought or sold. In the reverse scenario, you will lose money if the price moves against you. See here a Gold trading example.
With CAPEX, you can trade CFDs on a variety of financial instruments including Gold spot prices:
Spread: 0.64 pips
Overnight Rollover – Long: -0.0076 %
Overnight Rollover – Short: -0.0063 %
Initial Margin: 5.0000 %
What moves the price of gold
Unlike almost any other asset, gold is typically neither safety nor a risk asset, though the popular financial media have often called it both over the years (depending on how gold has been performing in recent months). Instead, it’s a currency hedge for which demand rises when there are concerns about inflation diluting the purchasing power of fiat currencies (particularly those most widely held, like the USD and EUR). In other words:
- In times of optimism (aka risk appetite), gold can either appreciate if markets believe growth will lead to inflation, or it can fall if the desire for higher yields overrides inflation concerns and investors move into more classic risk assets which they believe will provide better returns.
- In times of pessimism (aka risk aversion), gold can either rise if markets believe that stalling growth will lead to rising deficits and/or money printing that could cause inflation, or it can also fall on fears of deflation or of a market crash that feeds demand for cash. In times of panic, traders seek cash either to cover margin calls or other obligations or to be ready to go bargain hunting.
If pessimism turns to panic, then gold could either:
– rise if markets are more concerned about the USD or EUR losing their purchasing power than about near-term liquidity needs, as was the case at times from 2009 through 2011.
– fall if markets are more concerned about liquidity than the loss of purchasing power, as was the case in late 2011.
When markets are not concerned about fading purchasing power, the major currencies tend to gain against gold. That can happen due to:
- Low inflation expectations, as we saw starting in late 2011. Concerns about the global economy kept inflation fears low, and so gold began a multi-month downtrend.
- Panic periods when markets fear a financial crisis, and liquidity becomes the top priority. We saw gold sell-off during times of peak anxiety about the US or EU. During these periods, investors tend to sell gold to raise cash.
How to Invest in Gold in South Africa
There are two routes to investing in gold assets online: speculating on their prices using CFDs or buying them in the hope they increase in value.
Trading gold CFDs
A CFD is a contract in which you agree to exchange the difference in the price of an asset from when you first open your position to when you close it. You are speculating on the price of the market rather than taking ownership of the assets. If you open a long position and the gold futures, stocks or ETFs do increase in value, you’ll make a profit, but if it falls in price, you’ll make a loss – the opposite is true for a short position.
Before you can start, you would need to open a CFD trading account.
Buying gold securities
You take ownership of a portion of the gold mining stocks and funds or gold ETFs outright, with the intention of holding it with a brokerage attempting to profit from share price changes as well as dividend payments. Unlike Gold ETFs that track the spot price of gold and hold 100% physical gold bullion, gold mining stocks and funds are not a “pure play” on gold, as it’s unlikely that a company’s value will directly replicate the price of gold.
Before you can start, you would need to open an investing account.
Start Investing in Gold in South Africa
Here is how to invest in gold assets with an international, highly regulated broker like CAPEX.com:
- Choose which type of account you want to use. Your first concern should be your risk appetite and time horizon. If you want to buy and hold gold stocks and funds, open an investing account. If you want to speculate on price movements (including falling prices) with zero commission and leverage, open a CFD trading account.
- Create an account. Regardless of your chosen account, you need to register and complete the KYC process to verify your identity.
- Fund your account with fiat money. Before buying and trading any gold markets, you need to fund your exchange account with U.S. dollars, Euros, or other currencies.
- Find your gold markets. Launch CAPEX WebTrader and analyze the available gold assets that suit your portfolio and risk appetite.
- Place a buy order for your chosen instrument. Follow the steps required by the trading platform to submit and complete a buy order.
When trading stocks, the CFDs (contracts for difference) are stored in your account and are more liquid than the underlying asset. However, you should be aware that CFD trading is fast-moving and requires close monitoring. As a result, traders should be aware of the significant risks when trading CFDs. There are liquidity risks and margins you need to maintain; if you cannot cover reductions in values, your provider may close your position, and you'll have to meet the loss no matter what subsequently happens to the underlying asset.
Why Invest in Gold with CAPEX?
All markets in one place
More than 2.100 instruments enable you to stay active on the global markets with a CAPEX account. Choose from a wide range of CFDs on gold assets and other popular instruments.
Trading on margin
Providing trading on margin (1:20 for Gold Spot and 5:1 for Gold Stocks and Gold ETFs), CAPEX gives you access to the hottest gold assets with the help of CFDs.
Trading the difference
When trading gold assets, you do not buy the underlying asset itself, meaning you are not tied to it. You only speculate on the rise or fall of the gold asset price.
With CAPEX Invest you get access to 10 major stock exchanges and 5.000+ stocks and ETFs to buy, including the SPDR Gold Shares ETF (#GLD) track the spot price of gold bullion and hold 100% physical gold assets in HSBC's vault in London.
All-round trading analysis
The browser-based platform allows traders to shape their market analysis and forecasts with sleek technical indicators. CAPEX provides live market updates and various chart formats, available on desktop, iOS, a
Focus on safety
CAPEX.com is operated by Key Way Investments Ltd and is authorized and regulated by the Cyprus Securities and Exchange Commission (CySEC) (license no. 292/16).
Summary of How to Invest in Gold in South Africa
Even though the price of gold has quadrupled since the late 1990s, factors suggesting a strong future are there. No asset should comprise most of your portfolio, but it may be hard to argue against owning at least some of the precious metal going forward. Turns out, Magellan’s Pacific Island friends knew what they were doing.
When investing in gold in South Africa, first ask yourself whether you want to track the price of gold or whether you would prefer to have exposure to gold-related companies. Gold mining stocks and gold mining funds provide exposure to the value of gold companies, not directly to the gold price. The other options discussed aim to track the price of gold. Once you have decided, weigh the pros and cons of the various available options, and start investing in gold.
Final nugget of wisdom from an old English proverb: “When we have gold we are in fear, when we have none, we are in danger.”
Before you start investing in Gold in South Africa, you should consider using the educational resources we offer like CAPEX Academy or a demo trading account. CAPEX Academy has lots of free investing courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better trader or make more-informed investment decisions.
Our demo account is a suitable place for you to get an intimate understanding of how trading and investing work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for investors who are looking to make a transition to leveraged securities.