Gold granules as an investment option?
A summary of gold granules
Buying and storing gold granules requires a high level of specialist knowledge
Granular gold is considered a sought-after precursor material highly valued for making jewellery as well as other products. Being exceptionally pure, gold granulate could also serve as an investment. However, unlike bars or coins, purchasing and storing gold granulate is a complex task. Private investors should thus carefully note certain drawbacks to avoid making a bad investment.
Gold granulate has some advantages and disadvantages: Firstly, it is a high-quality precious metal product which is extremely pliable and impressively versatile. However, investors will find that buying, and later selling on, granular gold can be difficult. This is mainly due to a very limited market supply together with an associated lack of comparative options. Strict purchasing criteria as well as incorrect certification can also make granulated gold a tricky investment product to handle. For these reasons, experts generally tend to advise private investors against viewing gold granulate as an investment prospect.
Production and usage of gold granulate
The source of most gold granulate is primarily scrap gold, though raw gold extracted from mined ore can also be used. During production, the aim is always to obtain the purest possible gold as an end product. To achieve this, raw or scrap gold must undergo complex cleaning procedures, processing that mostly relies upon electrolysis and the use of chemical substances. Such methods are designed to separate the pure and impure metals within the source material in order to flush out the gold. Raw gold ore often contains traces of copper and silver, which is filtered and washed out to be used for other purposes. Ideally, the residual material left behind is gold with a high fineness of 99.99%.
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The washed gold is melted at over 1,000 degrees Celsius and then passed through a sieve while in a viscous state to ensure it takes on its characteristic granular form. This material is dripped into cold water where it forms small gold lumps around 0.1 to 5 millimetres in diameter. These granules cool and solidify immediately, which means they can be easily recovered from the immersion bath. Depending on their intended future use, they are then packed in containers of different sizes to be prepared for sale.
The jewellery industry is the main consumer of gold granules. Goldsmiths and jewellers acquire these fine gold beads to make necklaces, rings, watch casings and much more. The ease with which gold particles can be handled and measured is an advantage, because they can be weighed to the exact gram. Gold granules are also used for minting limited editions of collector coins, while dentistry and electrical engineering likewise demand a continuous supply of gold pellets.
Gold granulate as an investment
Gold granulate is pure gold, and thus has a correspondingly high value. Its price is based on the international gold price, which is negotiated daily on the London Bullion Market and at other locations. The gold price is based on a unit of one troy ounce, which is the equivalent of 31.103 grams. This price is initially quoted in US dollars and then converted to other currencies at the current exchange rate. The offer price for gold granulate is based on this figure, plus production and trading surcharges. However, granulated gold does not undergo any of the sophisticated minting processes required to create gold coins or gold bars, so such surcharges are usually relatively low.
The big advantage of gold bars and gold coins is that these investment products are VAT-exempt when purchased, and again later if they are sold on. However, the same does not apply to gold granulate, because this material is not legally designated an investment product. It is effectively treated like jewellery and white precious metals, which means granulated gold attracts the full rate of VAT. In Switzerland, this tax is applied at a rate of 8.1% from January 2024. Learn more about this in our article about taxes on gold in Switzerland.
All this means that any net price advantage is cancelled out by the VAT tax surcharge. From this perspective, gold granulate does not represent a cheaper purchase than coins or bars. But there is an important exception to bear in mind: If the granulate is delivered direct to a duty-free warehouse immediately after purchase, it will not be liable for VAT. You can learn more about the criteria which govern this option in the “Storing gold granules” section below.
Purchasing gold granules
Private investors who decide to invest in gold granulate despite its many disadvantages can buy this product from selected precious metal retailers or else direct from a refinery. It comes in various gram units as well as in larger containers, which usually tend to be a little cheaper in comparison. The process of weighing, packing the product in foil bags, together with labelling and certification operations often involves additional costs. So the price per gram is usually a critical feature in any gold granulate transactions.
In principle, only a few high-street and online retailers in Europe carry stocks of gold granules. Thus, in effect, investors have no real opportunity to make price comparisons. Furthermore, refineries mostly sell their gold granulate to wholesalers or recyclers, which means there is less opportunity for private investors to acquire the product.
A valid manufacturer’s certificate is important when purchasing gold granulate, and the pellets should always be sealed inside a foil bag or else packed in a sealed container. The packaging should also bear a precious metal certificate providing detailed information about the contents. This should include the manufacturer, weight and fineness of the product, and carry the auditor or smelter’s seal. Without this information, it would be very difficult to prove the quality of the gold at a later date.
Selling gold granules
And likewise, for trouble-free selling of gold granulate, the product packaging must be intact and must precisely match the information given on the associated certificate. Once a foil bag has been opened, or if a seal has been broken, this will most likely compromise the entire transaction. Regardless of whether the would-be buyer is private or commercial, the gold would then have to be tested for its authenticity and fineness. This itself is a costly and time-consuming process, and means the buyer would also demand (and indeed expect) a significant discount.
As with purchase transactions, any subsequent sale of gold granules will involve a number of hurdles. It is almost impossible to conclude a sale between one private investor and another, because there is simply not the same level of market demand as exists for common coins and bars. Goldsmiths often have their own contracts with wholesalers and thus will not buy from a private seller – or when they do, they always expect a substantial discount. In most cases, refineries will only accept containers when they are completely intact and contain gold granules they originally supplied from their own stocks. The same also applies to specialist dealers.
Investors are therefore advised to inquire carefully about a possible repurchase at the time of making a purchase of gold granules, and to clarify the precise conditions under which this can be done. However, this itself inevitably creates a certain degree of binding loyalty to the dealer, making it far more difficult to seek a better purchase offer when the time comes.
Storing gold granules: special features
High-value granulate gold cannot simply be stored inside your own four walls. The options available in such an environment – wall safes and/or furniture safes – are limited by their security issues and restricted storage capacity. And if you plan to store large containers, even a safe deposit box won’t get you very far.
Depending on the quantity involved, it really only makes sense to store gold granules in a duty-free warehouse. These facilities are often offered by private storage companies. One particular advantage of using such a transit warehouse is that any small nuggets of gold you purchase can then be stored VAT-free. As long as your purchase remains within the interim storage facility, you will incur no taxes or import fees. These additional payments only ever become due if the gold leaves the warehouse. However, it is also worth knowing that many storage providers who specialise in the safekeeping of precious metal bars or coins, will not be prepared to store gold granulate.
Comparing gold granules with gold bars and gold coins
Gold bars and gold coins have several advantages over gold granulate. Unlike gold in granulate form, investment bars and coins have technical data marked directly on the product. Here, information such as weight and fineness is embossed on the surface, while mint marks or manufacturer logos provide important proof of origin. This means that all bars and coins can usually be clearly identified, and their quality proven, even without the presence of certification evidence.
These classic bullion products also offer an impressively broad selection and can be easily traded internationally. Both bars and coins are available in many attractive denominations, so investors can choose to purchase in smaller amounts as well as in larger quantities. Furthermore, they are suitable for novice and experienced investors alike. This type of bullion gold is available both online and in specialist shops from trusted retailers such as the Swiss precious metal dealer Echtgeld.
The most important advantage of owning gold bars and gold coins is that, unlike gold granulate, they can with few exceptions be purchased VAT-free. They qualify for this status because gold bars and coins are classified as investment products. Although the manufacturing process is more complex than with the creation of granules – which thus results in slightly higher net prices – the VAT savings compensate for any marginal price advantage.
Secure, discreet storage of precious metals in Switzerland
Gold coins and gold bars also have advantages over granules when it comes to storage. Secure, discreet storage of precious metals is available, for example, with specialist provider OrSuisse in Switzerland. This privately run company offers convenient and individual allocated & segregated storage of bars and coins. Here, unlike collective storage arrangements, your own original goods are clearly identified and always remain the property of the storage client.
As a special addition to this service, clients also receive negotiable warehouse receipts for their precious metals. Under the Swiss Code of Obligations, these documents have the status of securities. These certificates, also known as tradeable warehouse receipts, can be used as collateral security and are also designed to facilitate a simple transfer of ownership of stored gold without any need to physically move the goods in store.
In addition to gold products, you can also store your silver coins and silver bars. And because these are subject to VAT when purchased, just like gold granulate, segregated storage in a duty-free warehouse is also recommended. You can always compare the value of silver against gold investments using the gold-silver ratio.
A summary of the purchase and storage of gold granules
- Gold granulate is a preliminary product primarily used by goldsmiths. Other users include commercial mints, dentistry and electrical engineering.
- After cleaning, the precious metal granules become a form of pure gold with a diverse range of uses.
- Despite their undoubted fineness and purity, experts do not recommend gold granules as a gold investment.
- Due to the limited range of granular products available from a few refineries and specialist retailers, there are relatively few options for making a price comparison.
- Unlike gold coins and gold bars, gold granulate purchases are generally subject to VAT.
- Quite often, the only subsequent sale option is disposal via the original supplier. The container packaging must be intact.
- The most viable storage option is to use a duty-free warehouse, because this will avoid a VAT levy. However, the storage options for granular products are fairly limited.
- When storing coins and bars, clients can take advantage of allocated & segregated storage, which comes with negotiable warehouse receipts.
