Gold-backed NFTs offer new opportunities for precious metal investment
A new derivative of gold exposures, which are crypto-backed, offers SMSFs a new way to invest in the precious metal.
In a podcast for SMSF Mate, Robert Joseph, founder and director of My SMSF and My SMSF Property, said that for SMSFs looking at investing in gold, there’s a variety of exposures they can access depending on their level of understanding, knowledge and experience.
“Fundamentally, you have to determine what kind of asset gold exposure you want to hold in your SMSF,” he said.
“There are now providers that have launched silver and gold-backed crypto NFT collection – non-fungible token – with the equivalent amount of gold and silver redeemable on the face value.
“There’s the spot market for the NFT itself and then the intrinsic value, which is derived from the equivalent amount of gold and silver attached to the entity.
“It’s quite innovative and interesting.”
Mr Joseph said that over the past 13 years of working in the SMSF space, many of his clients have seen gold as a great asset class to hold in uncertain economic times.
“As a tangible asset, gold can provide a hedge against inflation, currency fluctuations, and geopolitical risks,” he said.
“When traditional investments like shares, property and fixed interest assets falter, gold often maintains or even increases in value, helping to preserve the wealth of investors.”
He said the most familiar way SMSFs can invest in gold is exchange-traded funds or ETFs.
“There are a couple of prominent funds that have been running for several years, and that’s an easy way to get exposure, where you can buy through a direct platform,” he said.
“Otherwise, there’s gold coins and gold bullion, where you would go to a gold dealer and buy bullion.”
He said gold coins, which are treated like a collectible, can get very tricky in an SMSF, but the majority – more than 70 per cent of exposure – is normally held by an independent provider.
Mr Joseph said that although some SMSFs choose to secure gold at home, he advises it is best held in a secure vault that can manage the compliance issues fundamental to holding gold within an SMSF.
“If you’re holding gold in a home, you’ve got some serious issues there,” he said.
“You’re going to have to get insurance for it and get it independently valued, which is going to be costly.
“Most people hold it in a vault where it’s insured, and it’s valued for free each year for a nominal fee. The vault also values the assets every quarter.”
There are vaults in every state, with some having two or three providers, as well as smaller independent providers.
“The key reason people put gold in their portfolio is due to uncertain times, like we’re experiencing now,” he said.
“When there’s uncertainty, high inflation, investors always run to safety assets like gold.
“In the last 10 years, we’ve seen a lot of buying into bitcoin, and uncorrelated assets as they’re called, that are not linked to conventional assets, and in the event of a downturn, they can be expected to appreciate and protect your portfolio.”
He added that because gold is often thought of as a lumpy asset, when an SMSF wants to sell it off, the gold provider is often the first port of call.
“The alternative is to use an ETF where you can sell smaller portions,” he said.
