Gold foil notes have been long taunted as a premium investment vehicle for increasing and maintaining wealth. However, are gold foil notes really investments, and can they actually go up in value and yield a positive return on investment? I’ve done the research and here is my conclusive answer.
Gold foil notes are not investments, so they are neither good nor bad investment assets. Instead, buying gold foil notes is more akin to speculating and hoping for the price of gold to go up in order to sell the notes again.
In this article, we will look at what gold foil notes are. Whether buying gold foil notes is worth it and if goldbacks are a good alternative investment. I’ll also discuss why gold foil notes are not an investment and how to invest in gold the right way.
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What are gold foil notes?
Gold foil notes are struck in 24-karat gold foil and these are coated with plastic so they can be circulated as gold and money. It is an alternative money system opposed to fiat money, which is based on the sound money principle, i.e. gold.
Usually, these foil notes are made of 99.99% refined pure gold, and their value thus fluctuates mostly with the price of gold itself. While originally made for trading and buying goods, these gold foil notes have nowadays become more of a collector’s item.
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Is buying gold foil notes worth it?
When asking whether buying gold foil notes is actually worth it can compare their worth to two distinct assets. For one, we can compare gold foil notes to gold itself as an investment option. Or we can look at the opportunity cost and compare investing in gold foil notes to investing in other investment vehicles.
Let’s start with the former! Gold foil notes sell for a much higher premium than gold. This is because their production costs are a lot higher than producing a coin or bar of gold. This makes them one of the highest marked-up premium products on the market for any gold product. Thus, it is much more beneficial to buy gold directly.
While gold foil notes are neat collector’s items, they are never worth the premium you pay. The principal point of gold foil notes is to make money for their producers.
When comparing gold foil notes to other investments, we’ll find a similar story, which I will go into a bit later in the article.
Are Goldbacks a good investment?
Goldbacks suffer more or less the same deficiencies that gold foil notes do. However, they’re a slightly better option since they are actually legal tender in some states. Currently, while goldbacks and gold foil notes share most of their characteristics, they also share their common deficits. Let’s look at these deficits next.
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Why gold foil notes are not an investment
In a way, the question of whether gold foil notes are good or bad investments is a non-starter. Gold and all other precious metals are not investment assets. An investment asset tends to go up in value over time and produce some sort of income or return for its investors.
In the case of stocks, this productive income is dividends. In the case of a business, the income is profits. Gold is a nonproductive asset, which means the only way to make a profit buying gold is to sell your gold at a higher price to someone else.
This naturally describes gold as a speculative asset and not an investment vehicle.
However, there are some legitimate ways to invest in gold.
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How to invest in gold
Some of the better ways to invest in gold and other precious metals are instead of buying the metal outright to invest in industries related to the production of this metal. In the case of gold, you could invest in gold miners or gold logistics companies that would profit from an increased price in gold and increase demand.
This way, your portfolio would get exposure to gold and the security and stability that it does offer while also owning a productive asset that actually provides returns in the meantime. While there are many other ways to invest in gold, these are the two most common forms and generally the most recommended ones.
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I believe that money is just a means to an end: to be free to spend your time as you wish, to maximize your positive impact on the world.
