For example, the purchase of gold coins and bars is associated with trust in the dealer, who can guarantee the quality of their products by providing all the necessary certificates. Physical precious metals need to be stored safely as they are at high risk of theft.
Anyone who invests in gold derivatives (derivatives) trusts the operator of this service that he has enough physical precious metal to cover his securities if there is a demand for the supply of physical gold to the investor. Thus, investors have some difficulties in choosing which instrument is best for them to invest their capital in order to minimize risks.
Last year's coronavirus crisis showed that institutional investors preferred to invest their capital primarily in paper gold. The capital inflow into this type of precious metal amounted to 877 tons, thus becoming a record - this is an increase of 35% compared to the previous record in 2009 with a volume of 649 tons. Sales of physical gold in the form of coins and bars amounted to 896.1 tons - this is an increase of only 3% compared to 870.9 tonnes in 2019.
Apparently, in the current year 2021, we are observing a change of priorities among investors in choosing an investment asset in the gold market. While in the first quarter of 2021, sales of coins and bullion increased from 250.5 tons to 339.5 tons (an increase of 35.5%), the "gold" ETF funds experienced an outflow of funds in the amount of 175, 6 tons, although a year earlier this figure grew to 299.1 tons.
It should be said that institutional investors prefer to invest in ETF stocks due to low commissions and ease of trading these assets, but their investment horizon is short-term.
Investors buy gold coins and bars for the long term, since they have a large difference between the buy and sell price. Therefore, you need to wait for a significant rise in prices in order to gain profit. They also require high storage costs. Gold investors purchase coins and bars out of the belief in the reliability of these investment assets. This reliability has proven itself over many generations.
Buyers of ETF stocks see this instrument only as a temporary solution during an unstable period or crisis. If in 2020 the world was dominated by fear and uncertainty, then in the current 2021 there is optimism for an early return to the previous pre-crisis life.
Supposed negative factors, such as an increase in interest rates or an appreciation of the US dollar, are unlikely to put pressure on the psyche of the owners of gold bars and coins. Eventually, you will see interest rates rise, not only with higher opportunity costs (no interest), but also with a higher risk of default by bond debtors, who in the past few decades seem to have become accustomed to super cheap money.
Normalization of monetary policy is out of the question at this time, and this, in turn, should make cautious investors ponder how best they can to keep their savings from depreciating completely.