Ask Susan: Should I Invest in Gold?

RNZ financial reporter Susan Edmonds.
photo: Royal Bank of New Zealand

Have a burning question you want answered? Send an email susan.edmunds@rnz.co.nz

I have heard of people investing in gold along with their stocks and fixed deposits. Is this worth doing?

Gold prices have risen steadily since the end of last year, with the price of a gold bar even reaching US$1 million (NZ$1.62 million) for the first time this week.

While most people don’t have the resources to invest in a whole gold bar, some retail investors do include precious metals in their portfolios.

Chris Smith, managing director of CMC Markets, described the past year as a “splendid year” for gold, with many factors working in its favour.

He said high inflation combined with the prospect of falling interest rates creates a “really favorable” environment for gold.

Since gold doesn’t pay any interest, it tends to perform better during periods of low or falling interest rates. In addition, global conflicts also boost demand for gold.

Gold prices in U.S. dollars have risen 21% in six months: “Gold’s rally is strong and shows no signs of slowing down.”

Smith said all investors should diversify across multiple asset classes because they do not move in unison. He said interest in gold has doubled among CMC clients, many of whom are short-term traders.

He said gold has been a proven asset class “forever,” although some are now replacing it with Bitcoin to fill a role it may have previously played in their portfolios.

“What people want is not the stock market, not the housing market, but technically an inflation hedge. Gold continues to be an attractive asset class this year and further price appreciation is expected.”

David Boyle, former investor education group manager at Sorted, said gold was proving to be a good long-term investment.

“It’s a hedge against a rising stock market. If both the stock market and the bond market are feeling pain, gold’s value will go up.”

You can invest in gold by buying it directly, investing in exchange-traded commodities (ETCs), buying shares in gold mining companies, or investing in funds that invest in gold mining companies. You can also buy futures, but they are slightly riskier.

I’m almost 70, with an almost $80,000 mortgage and about $100,000 in savings. Can I still retire?

You do have options, says Liz Koh, a retirement planning expert at Enrich Retirement.

She’ll advise you to pay off your mortgage first (which might make sense if you need to wait until the end of the fixed term to pay it off without penalty).

She says you can set up a line of credit or revolving credit as an emergency fund for when you need it — and continue to work as long as possible.

When you become unable to work, you may want to consider whether it’s worth trying to free up some of your home equity.

That might mean downsizing to a home worth slightly less so you can take out some of that money, or considering an equity release loan — sometimes called a reverse mortgage.

Koh says you should have some money in the bank to meet your short-term needs, but anything you won’t use for more than five years should be put into a fund such as KiwiSaver, which will get a better return.

If doing so doesn’t affect your enjoyment of life, you could also consider renting out a room in your house to generate another source of income, Boyle says.

She says you’re unlikely to be the only one in this situation — a retirement village might even be an option for you. “You’ll have fixed costs and you’ll have equity in your property.”

Saving for a pension and living on income from work can also help you build up your investments.