Investing in gold and jewellery – popular in times of political and economic turmoil

According to Dina Matvejeva, investments in jewellery are certainly not the most popular type of investment in Latvia, but customers who want to further diversify their investment portfolio choose gold relatively often. Interest usually increases in times of crisis or turmoil, as there is a growing concern that “virtual” money may disappear and physical money may lose value, while gold or other precious metals will hold their value. Diversity is always good – if the stock or bond market starts to fluctuate at some point, the value of gold assets may move in a different direction.

There are different ways to invest in gold

Gold is a rewarding material because it is very durable – it does not rust, is easy to mould, it conducts heat and electricity. Thanks to these properties, gold has a wide variety of uses – not only as currency or in the jewellery industry, but also, for example, in manufacturing.
 
There are several ways to invest in gold, such as buying gold bars, which are also offered by Latvian banks, buying gold coins, buying shares of funds (ETFs), the value of which depends on gold, or becoming the owner of shares in a gold mining company. You can also buy gold futures, i.e. conclude agreements where one party agrees to buy a commodity at a specific time in the future at a predetermined price.
 
Each type of investment has its pros and cons. For example, a gold bar creates a sense of security because it “physically exists”, but at the same time, if there really was a crisis, the question is how easy would it be to sell it on the market and at what price? It should also be taken into account that the storage of gold bars involves certain costs. Coins released in small quantities have additional symbolic value, but not all coins attract the attention of collectors. The Bank of Latvia also regularly issues gold and silver collector coins, which people can buy in the hope of their value increasing in the future.
 
Fund shares, stocks and futures are relatively liquid financial instruments, easy to buy and sell. Additional risk is related to the successful operation of the given company.

A diamond or a ruby?

The most valuable gemstones are ruby, diamond, sapphire and emerald. Investing in gemstones can be compared to investing in works of art, as each gemstone is also unique and therefore suitable for connoisseurs and aesthetes, as such an investment will also provide aesthetic pleasure. Precious stones are evaluated by size, cut and other parameters, but it is not always worth buying the most expensive ones. Market data shows that less valuable gemstones can increase in price more substantially and are easier to sell. However, great care must be taken against fake gemstones and gems should only be bought from a reputable seller and preferably with a laboratory certificate.
 
It should be taken into account that the value of precious stones is also affected by economic developments. For example, the price of diamonds fell during both the global financial crisis of 2008 and the COVID-19 pandemic, but in the long term, the price of precious stones rises by an average of 5 to 8% per year. Investing in precious metals is definitely not a short-term investment, with a minimum time horizon of 10 years, preferably 15 or 20.

Determining the value

As with any commodity, demand versus supply is the main factor influencing price, but it is not the only one. The future value of coins will also be influenced by how old and rare they are, while in case of jewellery – not only by the value of the material itself, but also by the popularity and reliability of the manufacturer’s brand.
 
If you want to invest quickly and easily in gold, the value of which will depend directly on the price of gold without any additional subjective factors, the easiest and cheapest way is to buy shares in an ETF. This means that the fund itself will physically buy the gold and ensure that the price of gold correlates with the price of its share. You can quickly close and open a position, and you do not have to pay for storing physical gold. Before investing in precious metals or jewellery, I recommend discussing this with your banker to find the most appropriate type of investment and decide how much of your accumulated capital to invest in this instrument.