2 best options for a SMSF investing in gold

Recent geopolitical turmoil has sent the price of gold up, gold has always been seen as a “safe haven” asset, providing stability when financial markets are turbulent, and in a retirement portfolio, is a hedge against monetary inflation.

Having a SMSF investing in gold is typically cumbersome, as most times, people will choose to buy physical gold in bars, bullion, or coins. The physical gold, of course, requires a long term and secure storage solution which is typically carried out by a third party, which can cost thousands over the life of your super fund.

Having physical gold in a self-managed super fund means that it must pass the “sole asset test”, as you’re not allowed to “use” the gold outside of the purpose of a super fund. That means no storing it yourself, no display in your home, and you cannot use it any time. This is heavily audited, and because it’s a complicated solution, will incur higher costs.

Fortunately, there are other ways that your super fund can have exposure to the price of gold, whilst it’s not the same as having the physical gold, it is a much more affordable, safer, and easier option than opting for the real thing.

Gold backed cryptocurrencies

Cryptocurrencies are able to form part of a SMSF, and cryptocurrencies which are backed by real gold are fast becoming a popular option to form part of a super fund because of their scalability and low cost.

There are a few options in the market right now, and most of these cryptos work the same way, in that when you buy a token, the organization issuing them will purchase physical gold and store it on your behalf. Most will allow you to swap the token for gold, and even transfer it to others easily.

The tokens have different amounts tied to each token, for example with the Gold Standard token, 1 token equals 1 gram of gold, whilst with the Perth Mint Gold Token, 1 token equals an ounce of gold. 

The gold is stored securely in vaults around the world, and is regularly audited by independent 3rd parties to ensure that the amount of tokens issued matches the amount of gold purchased by the issuing organization.

There are risks to this type of investment of course, one aspect to be careful of with gold backed crypto is liquidity, how quickly you can sell the asset once it comes time. Ensure you understand how the crypto works by reading the white paper to see how liquidity problems are handled.

The other risk is based on trust, you need to ensure you trust the organization issuing the token, as the last thing you would want to find out is that they never purchased any gold, or they went bankrupt. Make sure to choose an organization which will last for the long term.

Gold Exchange Traded Funds

Gold Exchange Traded Funds (ETFs) are similar to gold-backed cryptocurrencies, in that some ETFs will exclusively buy gold to provide the underlying value for the fund, seeking to track, or mirror, the price of gold.

ETFs are different from cryptocurrencies, as of course they are available on the “traditional” financial markets, and are available on the Australian Stock Exchange (ASX), or the New York Stock Exchange (NYSE) for example.

There are other types of gold ETFs available than those which only buy gold bullion, some will invest in gold mining companies, others will use leverage to attempt at making a higher return on the movement of gold prices.

Unfortunately, unlike with some gold-backed cryptocurrencies, ETFs which buy gold bullion do not allow for you to take ownership of the gold.

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