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A Beginner's Guide: How to Invest in Gold in South Africa

Investing In Gold

The global financial market presents a potential opportunity for investors, traders, and enthusiasts for earning. Two investment schemes known to mankind that could generate potential profits are real estate and gold investing. While real estate requires huge capital to get started with, the case is different when you want to invest in gold or precious metal.

If you are ready to dive into the world of gold investment, this article is specifically curated with you in mind. In this article, we will talk about buying and selling gold in South Africa, the advantages, and disadvantages of investing in gold.

TABLE OF CONTENTS

  1. How to Invest in Gold in South Africa
  2. Useful Gold Trading Strategies
  3. Gold as a CFD Instrument
  4. Is physical gold a good investment in South Africa?
  5. Gold CFDs Trading in South Africa: Pros & Cons
  6. Where to Trade Gold CFDs in South Africa?
  7. Investing in gold CFDs at PrimeFin
  8. Why should you buy Gold CFDs on PrimeFin?
  9. How to buy gold CFDs with PrimeFin
  10. How to buy gold in SA for beginners
  11. Conclusion: Investing and trading in gold in South Africa

How to Invest in Gold in South Africa

OK, so if you have not heard of investing in gold in South Africa before stumbling across this article, you have now. But the first question you may be asking yourself is, “what is the difference between gold investing and gold trading?”

Perhaps the easiest way to distinguish between trading and investing is to think about it in terms of time frame. Whereas gold investors usually think about holding gold long-term because they think the value of gold will increase in the long run, gold traders will be considering how they can profit from the changes in the gold price over a short period.

At this point, you will now be asking two questions. First, “how can I start trading gold?” And second, “how can I start investing in gold?”

Gold is one of the most precious and in-demand substances in the world. The metal is used for different things, although its application in making jewelry. Besides jewelry, you can find gold being used in products like electronics, medical supplies and drugs, infrastructure pieces, and much more.

With all of this, gold is always in high demand. Many around the world require the product for different reasons, all of which tend to drive up its value. But, like every other precious metal, gold’s price is also subject to swings and changes.

Like every valuable product in the world today, gold’s price is very important. Some people buy gold as a store of value, ensuring that they can sell it at a later date at a hopefully higher price - or, at least, the same price they bought it. This makes gold a great store of value and even a hedge against inflation.

At the same time, some people prefer to trade against gold’s price. Since it is such a high-demand commodity, gold’s price is subject to different fluctuations. Investors and traders love to make bets on gold’s price, so they can make more money. In fact, many people look into how to invest in gold so they can profit off movements in the precious metal’s price.

The golden rule of gold trading is the same as always - buy when low, sell when high. Several investment vehicles also allow for complex and sophisticated trading, offering even more avenues for investors and traders to make money from gold.

There are different gold investing strategies for anyone looking to get into the market. Experts will make different recommendations when it comes to the best way to invest in gold, but you can generally find the right amount of exposure using the following methods:

1. Physical Gold

Quite possibly, this is the most common image that comes to people’s minds when they think about gold investing. Since gold is a naturally occurring metal that is corrosion-resistant, it’s not uncommon for investors to keep physical gold themselves. Physical gold is usually made into gold coins (such as Krugerrands) or gold bars. While individuals can keep gold coins or bars themselves, it is much more common for banks and institutions to hold physical gold due to the impracticalities that come with storing it.

2. Gold Certificates

Due to the risks involved with storing physical gold, many investors choose to invest in gold certificates that represent a certain amount of gold held in an issuing institution. The certificate represents a certain amount, denoted in ounces, held by the institution, and is tied to the value of gold. Through a gold certificate, investors are saved the expenses and risks with holding the physical gold but get an easily exchangeable asset.

3. Gold ETFs

Gold exchange traded funds (ETFs) are a collection of shares in companies that center their business in gold; namely, mining, refining, and production. Because these kinds of companies’ profits are tied closely to the price of gold, they are an indirect way for investors or traders to get exposure to gold. Most commonly, ETFs are the choice of investors wanting a passive investment as, by design, ETFs mimic price movements and do not outperform the market.

4. Gold Futures and Gold Options

Futures contracts and options contracts on gold are more in the territory of gold traders rather than investors. A futures contract works through establishing a price between a buyer and a seller to exchange gold at a fixed price at a future date. At the date listed in the contract, you would have a contractual obligation to carry out the terms of the deal: the actual exchange of gold for cash.

An options contract works by giving you the option (rather than the obligation as in a futures contract) to exchange gold at a set price at a particular date, hence the name “options contract”. Traders can either purchase a ‘call’ option which is the right to buy gold, or they can purchase a ‘put’ option which is the right to sell gold.

Both types of contracts are popular among traders for speculating on the price movements of gold. Traders can profit on both the increases and decreases of the price of gold.

Gold options are an ideal way for people to engage in gold investing without having to buy the asset physically. They offer a broad variety of ways and methods to purchase gold, and you can easily choose one based on your preference.

When you buy gold options, you purchase a contract that uses physical gold or gold futures as its underlying asset. Essentially, the contract gives you the right - but not the obligation - to buy the asset or the futures contract. In other words, gold options allow both parties to agree on the terms of a gold-based transaction in advance - even though the actual exchange doesn't happen until much later; if it even happens at all.

In an options agreement, you iron out all the details of the transaction - from the quantity, delivery date, strike price, and more.

Gold investing through options can be divided into the following:

Call Options

A call option happens when a trader expects that the price of gold will climb in the future. So, the trader purchases a call option, which allows him to buy gold bullion at a future date and an agreed price.

Call options allow buyers to retain their right to purchase gold. On the other hand, sellers are locked in and would need to sell the gold at the agreed price. Since the call option locks a buyer in at a lower price, it becomes more valuable when gold’s price jumps

Put Options

With the put option, a trader can sell their gold at a given price at a later date. You can purchase a put option when you expect gold’s value to drop. So, when you buy it and the value of gold drops below the strike price, you earn a tidy profit.

Many investors believe that gold futures are the best way to invest in gold. These assets allow you to enjoy greater flexibility when managing your portfolio, and they’re also easily accessible to even retail traders.

In the simplest sense, futures are contracts where a trader purchases an underlying asset at a given price and time in the future. So, while the purchase amount is decided right now, settlement of the contract and its obligations comes later. This way, gold investing through futures looks similar to options.

When you trade futures, you make an initial payment to purchase gold at an agreed date. But, the complete payment is made at the agreed date as well. As expected, futures trading depends on some speculation.

With futures contracts, you can take short or long positions. In a long position, you buy gold with the expectation of a price surge. But, when you take a short position, you sell your gold while expecting that its price will drop.

Many traders and hedgers use gold futures to minimize and manage the risks associated with the asset. These contracts are also beneficial since they allow you to participate in the gold market without actually owning any physical gold. Futures contracts trade on exchanges, so they offer more financial leverage to you. They’re also more flexible, and you can find them on many brokerage services.

5. Gold Stocks

Above, we mentioned gold ETFs which are a basket of companies that deal in gold, well, trading or investing in gold stocks means directly purchasing shares in a single company that mines or produces gold. While not exactly, the price of your stock is going to be significantly affected by gold’s value. For this reason, gold stocks give great exposure for traders and investors to the price of the precious metal.

6. Gold as a CFD Instrument

A Gold contract for difference (CFD) is a contract similar to a futures contract as explained above but without any obligation to exchange the physical gold. Another way of thinking about gold CFDs is that they are bets between traders on whether the price of gold will move up or down. CFDs are risky and are a complicated trading tool. Because gold is such a well-known commodity, gold CFDs are popular among advanced traders to incorporate into their trading strategy.

Useful Gold Trading Strategies

As it is with every other asset, trading gold requires a proper strategy. Below are some simple options you could consider as you look to optimize your returns:

1. Consider the New York Close When Day Trading

The gold market is open 24/7. But, the peak liquidity usually occurs when the New York market is open. You could also track trades during or after trading hours for New York.

Trades in peak activity hours offer optimal liquidity and reduced volatility. So, you can be much safer when you target these regions. But, keep in mind that trading during off-hours offers better volatility and an opportunity for you to scalp trades.

2. Target Highs and Lows

The gold/dollar pair usually trades in a range. So, you could identify buy and sell opportunities by targeting previous highs and lows for it. You could open a gold position when the price rises and use the previous high as your selling price.

Since gold is pretty stable, it has a high chance of reaching these previous highs or lows. If you’re a long-term trader, this can be an impressive strategy.

3. Keep an Eye on the Fundamentals

Remember that factors like geopolitical instability tend to weigh on the gold price. When instability rises, gold offers a haven for investors. So, keep an eye on the news and try to analyze their implications on the market.

4. Watch the Demand for Gold

Today, gold is used for more than just making jewelry, its demand is rising among different industries. So, keep an eye on those as you trade.

The demand for gold will definitely affect its prices. So, look into global demand in foreign markets just as you examine the domestic one.

5. Watch Central Bank Actions

Many central banks buy gold as inflation hedges when they believe certain currencies will be more volatile. When the pressure to buy gold rises, it tends to mean that governments believe fiat currencies will dip in value. Increased buying also tends to increase the price of gold. So, that’s an opportunity for you.

Is physical gold a good investment in South Africa?

If the answer to that question was determined by length of historical use, the answer is a resounding yes. Gold has been around for thousands of years as a medium of exchange and as a store of value. However, more realistically the answer is, it depends. All investment types have risk and essentially it comes down to the type of investor you are (and want to be).

Advantages of investing in physical gold in South Africa

What do the gold bulls say? Let us look at some of the advantages of buying physical gold.

  1. As protection against inflation

The starting point in outlining the case for gold’s advantages as an investment is that it is both a stable investment and a hedge against inflation. Since there is a limited supply of gold in the world, once you own some of it then you own a definite portion of the world’s supply. Investors then use gold as a diversification tool to protect wealth against inflation and the volatility of other investments. 

If a government creates more of their currency (i.e., inflates their currency), like if the South African government creates more Rand, then the relative price of gold should, in theory, correspondingly increase. In this situation, you have successfully protected your wealth against inflation by buying gold.

  1. As protection in times of crisis

Another advantage is the protection it offers in times of major crisis. When disaster strikes, gold has historically increased in price such as it did recently when COVID-19 spring itself on the world. This is because people believe that gold will outlast economic systems. Should we experience an apocalyptic event causing economic collapse, then physical gold could be used to exchange goods and services in place of money.

  1. As an inheritance

The final advantage of gold we will mention here is its suitability as an easy asset to pass on to others. Physical gold (and even gold certificates) can be included in a will as part of an inheritance or can be simply given to loved ones. Bless loved ones at their wedding, the arrival of new children, and other major life events, by passing them an asset to help them in their stage of life.

Disadvantages of investing in physical gold in South Africa

OK, we have looked at how great gold can be, let’s look at the other side: The other side of the coin, so to speak. What are the disadvantages of investing in gold in South Africa?

  1. It is difficult to store and transport

Gold is a metallic element that is very dense and heavy, it is not something you can easily stuff into a handbag. Oftentimes, practically transporting physical gold is a huge logistical downside!

And, once you have dealt with the difficulties of transporting it, you now must solve the problem of securely storing your gold. Unless you are willing to install expensive security measures, you will have to live with the risk of having such an asset that is relatively vulnerable to thieves.

  1. It is a liquid asset

Another more subtle disadvantage of investing in gold is its liquidity. Generally, liquidity is a positive thing; it means that it can be easily traded for another asset. However, this does mean that gold dealers will charge a premium on sales and so at the point of your purchase you will be paying more than the spot price (what the market is listing as the price of gold).

Gold’s liquidity makes physical gold not ideal for short-term trades. While you can look around for a broker that will give you the best deal, you will automatically need to hold your gold for some time before you start to see the appreciation on it.

Gold CFDs Trading in South Africa: Pros & Cons

The Advantages of Trading Gold CFDs

Gold CFDs trading come with so many advantages which we'll take a look at in this section. First and foremost, as a good CFD trader you will be exempted from paying what is known as stamp duty; plus, it is not a must to deposit the full value of your trade, unlike a trader who is involved in the physical trade of gold.

Another possible benefit of CFD trading is that you can hold the investment for as long as you wish, since it doesn't have an expiration date. The trader decides when to close his or her trading position using the prevailing market conditions as an albatross.

During unstable and economic uncertainty, gold options are one of the means that investors could leverage to enjoy investment stability. As a matter of fact, an investment in gold is considered the world over as a solid investment.

While this may sound too good to be true, it can also spell doom if the market goes the opposite direction from your trading strategy. You will be exposed to a high risk which may cause you to lose your trading capital to market forces.

Lastly, any cost you incur as a result of trading gold CFD is usually very minimal; this alone can help to shore up your annual savings. However, the cost of gold CFD trading largely depends on the broker you are trading with and your location. The fact that you're trading gold CFD will put more money in your pocket since you're paying less fees.

The Risks of Trading Gold CFDs

As with any investment or investment scheme, trading gold CFDs have its own inherent disadvantages. Let's take a look at some of them:

Since gold CFDs are usually traded on a margin, if the market goes the opposite direction from your trading strategy, the margin will magnify your risks which may cost you your trading capital.

1. The risk of Premature Liquidation in the market

On the gold CFD market, there are usually unfavorable gold price movements. Sometimes this movement represents high volatility if you invest in the market. But if you have a variation margin, it will let you maintain your required margin level so that you don't go against the rule.

Some brokers may even require you to deposit more money into your trading account within a short period of notice. Failure to do that means that the CFD provider will close your position and you will stand at a loss.

2. The Counterparty Risk

The counterparty risk is not too common. But, if it occurs, you may lose your trading position. And if you don't meet the financial obligation to your CFD broker, you may also lose your trading position, and by extension your trading capital.

Where To Trade Gold CFDs in South Africa?

Retail investors can trade gold CFDs on a reliable and reputable dealer or online broker. However, before you dive into the trading journey, it is important to review the performance and track record of the broker you will be dealing with. For instance, you need to review aspects like the broker's ease of deposit or withdrawal of earnings, the regulation status of the broker, the fees charged for transactions, as well as the efficiency of their customer service team and personnel.

While there are a lot of CFD brokers on the internet, one broker that is outstanding and has proven to offer value for money, as far as the South African financial market is concerned, is PrimeFin broker.

Investing in gold CFDs at PrimeFin

Buying and selling gold CFDs on our trading platform is straightforward. While there is no trade or investment that does not come with inherent risks, we have stepped up our game by providing a conducive and transparent trading environment for all Traders in real-time.

Whether you are a retail investor with a huge budget or a beginner investor with as little as $50, you can start trading on gold CFDs on our platform. Since you do not directly own physical gold, we allow you to invest in the rising and falling of the value or price of physical gold.

Why should you buy Gold CFDs on PrimeFin? 

  1. Regulation

In South Africa, financial regulators do not let their guard down. PrimeFin has met all the regulatory requirements and has been declared a regulated broker by the financial watch dogs in South Africa.

  1. Maximum Security

As long as you remain on our trading platform, your trading funds or investment is safe with us. To stay on top of our game, we use segregated accounts to hold traders' funds; thereby offering maximum protection to investors' portfolios.

  1. Protection Against Negative Balance

We understand the inherent risks on the physical gold market; as such, we have measures on the ground to protect investors from negative balance. These measures give traders and investors full control over any risks that may pop up as you trade gold CFDs.

How to buy gold in SA for beginners

Alright, so you have done your research and you now want to know how to start investing in gold in South Africa. Well, we have got some good news for you, here is a plan for buying gold for newbies.

1. Decide what type of buyer you are going to be

Are you looking for long-term investment? A quick trade? Some combination of both? The key thing to remember is that there is no right or wrong strategy, the wrong thing to do is to have no strategy at all. For this reason, having a strategy and letting that inform what kind of gold buyer you will be is a crucial first step.

2. Decide what methods you will use

As we have outlined above, there are several tools available to profit from gold’s price fluctuations. If you are seeking to do a combination of trading and investing, you will likely want to take advantage of several tools to have flexibility. Whatever you use and whatever your strategy, make sure you are always managing your risk.

3. Decide on your investment tools

As you are deciding on your investment and trading tools, always be smart about safety and security. Remember the logistical risks associated with physical gold. Occasionally, if it fits in with your strategy, it may be wise to consider derivative instruments such as CFDs and avoid the stress of dealing with physical gold.

4. Decide on your budget

OK, so you have lined up your tools in accordance with your strategy, now what? Well, before you spend any money, you need to allocate a total budget to your plan. Many traders and investors make the mistake of not knowing how much they will commit to any tool and so end up over-committing themselves and exposing themselves to too much risk, or they under allocate and miss out on opportunities. Set up your budget first to avoid these pitfalls.

How To Buy Gold CFDs With PrimeFin

Buying physical gold CFDs on our platform just got easier. All you need to do is to follow these three steps below, and you are good to go:

Step 1: Open a trading account. You need to launch our official website and then navigate to the area where you will see the account opening button. Click on the button and complete the account opening form. Upload all the required documents for the know-your-customer protocols, and then submit your account opening form for verification.

Step 2: Once your live trading account is up and running, the next step is to deposit funds that you will use to purchase the gold CFDs. We support a wide range of payment methods, so look for the payment method that is most convenient to you and deposit funds from your bank to your trading account.

Step 3: The moment your trading account has been credited, you can start trading gold CFDs. On our trading platform, you can open a long or a short position in order to make a profit. Once you open a position, you can keep track or monitor the progress or performance of your trade position to take a profit. Remember to Leverage trading tools to help mitigate the inherent risks on the market.

The truth is that it is practically impossible for you to sit all day in front of your laptop monitoring all your open positions; as such, you need these tools to serve as your second eyes on the market.

Conclusion: Investing and trading in gold in South Africa

As with any asset class, you should do your own research before trading or investing yourself. Fortunately, we at PrimeFin have collated tons of helpful information for you. We are a licensed broker specializing in offering CFDs as a way for you to trade in a variety of assets including gold. You can get started by making an account with us today.

FAQ

Is it legal to buy gold in South Africa?

Yes, it is legal to buy gold In South Africa. However, there are certain restrictions on the quantities and forms of gold you can own. For instance, you may not own a 1kg bar of gold, but you may purchase gold bars in 10grams, 50 grams and 100 grams quantities. Interestingly, the ability to buy gold in forms other than coins and jewelry was only made legal in 2005.

How much gold can I legally own?

There is no limit to the amount of gold you can legally own. However, before you invest in physical gold make sure you consider transportation and storage.

Is it cheaper to buy gold in South Africa?

Since we live in a global economy, physical gold is not necessarily cheaper in South Africa. It is worth considering ways in which you can purchase gold at the best price.

Is gold a good investment in South Africa?

Every trader and investor are different. What may be a good investment for one person may not be a good investment for others. Many investors have chosen gold as a good investment for its centuries-old history as a store of value.

Will gold ever lose its value?

No investment is risk free. Gold will have value as long as people want to buy it. When considering the history gold has behind it, there is a strong argument that gold will always be a sought-after asset.

Will the gold price increase in the future?

In other words, “will the price of gold increase in 2022?” Many investors believe that the price of gold will increase in the long-term. However, this is not guaranteed to mean that it increases between now and the year 2022. Before investing, make sure to assess the pros and cons for yourself. Remember no one can predict the future so make sure you have properly diversified your portfolio.

Is it the right time to invest in gold?

The answer depends on your investing timeframe. While most investors believe the price of gold will increase in the long-term, this does not mean that it will not, in fact, decrease in the short-term. Consider your strategy: for long-term holders of gold (2 years plus) the time of purchase matters far less than a short-term trader.

How do I start trading gold?

If you are ready to start trading gold, you can do so by creating an account with us at PrimeFin. We are a licensed broker offering the ability to trade gold CFDs on the market. We have tons of helpful tools and information for you to trade off the price of gold today.

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