Gold is valued as a commodity an investment that people can use to hedge against the devaluation of currency, inflation, deflation or any kind of economic uncertainties. Most people choose to buy physical gold in the form of coins or jewellery. Those who have the means go further by buying gold bullion bars that they either take physical ownership of or entrust to a bullion dealer. Many people who buy gold jewellery not only for investment but for fashion purposes.
The value of physical gold is based on its purity and its weight and not its monetary face value. Even if you buy a gold coin with a face value its market value is based on the value of the gold content. You may buy physical gold at a specific price but you may not be able to sell it for the same price.
Gold is incredibly liquid. You can take your gold jewellery and gold bullion coins and use them as collateral to take out loans. You get the cash you need when you need it while still maintaining ownership of your gold. You are given a specific period to pay off your loan, but like with all loans you should have a good working plan to repay the loan to avoid increased charges or the complete loss of your gold. Some lenders charge lower interest because of the low risk they are exposed to. They may even allow the borrower to roll up the interest to the end of the loan term. Gold loans are offered on the same day and often do not involve any credit checks as the loan is secured against your gold items. They are also quick, and easy to obtain. With the gold price expected to rise to a new bull market, getting loans against gold in Australia may start to look like an easy way to get that money you need.
People have various reasons for putting their gold up as collateral when they are looking for a loan. A borrower can leverage on their asset and holding on to the gold whilst the metal appreciates in value. Borrowing against gold is also popular with people in times of need such as medical emergencies.
While there are many benefits or merits for getting loans against gold in Australia there are other factors that may pose as a major disadvantage:
If the loan is not repaid on time, the lender may sell the gold in order to recover the money loaned. This is often done as a last resort. Some lenders may extend the period but charge a penalty for late payment.
Putting your gold as collateral for a loan may not get you all the money you need because the loan rates depend on the gold spot price which might be low at the time you take the loan out. Valuations also vary from one lender to the next, they are not uniform so it is important to compare the payout rates as well as what rate of interest they will charge you for the gold loan.