How to capitalize on Ukraine's gold market

Author : Yuriy Hryhorenko

Source : 112 Ukraine

Traditionally, gold has been considered one of the most reliable forms of savings
22:30, 16 October 2018

Traditionally, gold (bars, coins) has been considered one of the most reliable forms of savings. Gold is not only an object of investment but also a "protective asset," the price of which is based on the expectations. In the conditions of instability in the foreign exchange market and economic crises, many investors redirect their investments in gold.

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On the one hand, there are more than enough reasons for crisis phenomena in the world economy: US trade wars with the EU and China, the collapse of a number of regional economies (Turkey, Argentina), and the like. Trade wars were supposed to provoke an increase in demand for "defensive assets," including precious metals, but this has not happened yet. Recently, many countries (Turkey, Russia) have been talking about giving up the dollar as a currency of international payments. But these statements did not affect the real dealings. “Many countries of the world are not satisfied with excessive dependence on the dollar, so they are increasing investments in gold. First of all, Russia and China,” says Andriy Popov, Kreston GCG partner.

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On the other hand, gold prices have been falling recently due to the global strengthening of the dollar, which means that investors are investing in other assets without resorting to the “protective asset” represented by this precious metal. That is, in the current environment, gold does not fulfill its functions of preserving and/or increasing capital.

“Trade wars have increased the volatility of all financial assets. Gold has lost the status of an unconditional “safe haven.” As a result, preserving and increasing capital using gold requires more active management,” Anton Kovalenko, director of the treasury department and financial institutions of OTP Bank, emphasizes.

Price perspectives

It is a mistake to assume that gold is always becoming more expensive. Despite the inflation of the dollar, the value of gold has repeatedly demonstrated its fall. Andriy Popov notes, the last significant correction occurred in 2011-2012, when the cost of an ounce troy first reached $ 1,900, then collapsed to about $ 1,100 in 2015, and now is around $ 1,200. That is, from the beginning of 2018, the cost of precious metals fell by more than 9%. Anton Kovalenko states that taking into account the fall in world stock indices, including S & P500, NASDAQ, gold has a chance to strengthen to 5% by the end of the year.

Domestic gold prices are set by the National Bank, depending on the global market situation. From the beginning of this year to the beginning of October, they decreased (without taking into account fluctuations) by 6.7%.

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Features of the "gold" investment

When investing in gold, it is necessary to take into account the fact that the entry threshold is high enough, that is, you need to have a sufficient amount (for example, $ 1,000 and above) so that investments with the aim of preserving and/or increasing capital make sense. At the same time, the amount of necessary investments is still lower than with real estate investments or securities.

In addition, there are purely "administrative" restrictions on gold established by the National Bank, which, however, could be easily bypassed. Thus, in one working day, one bank is allowed to sell gold to one client for an amount not bigger than 5,4 thousand USD (this restriction does not apply to coins made of precious metals). In addition, the sale of bank metals by bank transfer should not exceed 3,216 troy ounces (100 g) of gold for one bank per customer.

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Forms of "gold mining"

The “investment gold” has several forms: gold bars and gold coins. Also, investors have access to "metal" accounts (deposits in gold).

The choice of a form of investment depends on the individual preferences of the investor. “A metal account has an undoubted advantage in terms of ease of buying/selling/storing an asset. At the same time, an investor needs to understand that he accepts the risk of a financial institution in which an account is opened. Physical gold has “inconvenient” for the sale/storage, but the preservation of the asset depends only on it,” Anton Kovalenko states.

Metal accounts can be opened in a few Ukrainian banks, so the demand for such deposits is quite low. A deposit can be opened even without a physical gold delivery, you can just pay the cost of gold to the cashier. As with a standard deposit, interest is charged on metal accounts, but their size is unlikely to inspire a potential investor: depending on the period, an average of 1.5-3%, from which you still have to pay 18% of the personal income tax (PIT) and 1.5% military collection. The average rates on "traditional" bank deposits vary in the range of 14-15% per annum.

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In such circumstances, the attractiveness of the "gold" deposits might be questionable. "Firstly, these contributions are not guaranteed, secondly, interest is about half the dollar rates. Passive income is so small that there is no point in taking risks. Thus, “physical gold” is not an asset, but, in fact, a commodity, possession of which (protection, etc.) means additional costs," said Andriy Popov.

The issue of buying investment coins made of precious metals is special. Investment coins are manufactured and sold by the National Bank through the regional representative offices and specially authorized banks.

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If the economy grows, the value of coins usually increases. But it is quite problematic to calculate percentages growth; it might differ by several times. The rarer is a coin, the higher is its value. The advantage for investment coins is not only the growth of their value but also the fact that they are not subject to VAT. At the same time, for "professional" earnings on coins, one must have both connections and specific knowledge in this sphere.

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