Fool’s gold – when the queue is longer than the rally
In this week’s video insight, I highlight the folly of buying physical gold amid the recent surge in prices. When people were lining up at Sydney’s bullion stores paying nearly $225,000 per kilo, it signalled a market nearing its peak – exponential rallies like that are rarely sustainable. Beyond timing risk, buying bullion involves steep frictional costs, with a spread of around 7 per cent between buy and sell prices. Since then, gold prices have fallen sharply, leaving many buyers facing losses. If you really want exposure to gold, I argue it’s far more efficient to buy a low-cost exchange-traded fund (ETF) rather than lining up for physical bullion.
Transcript:
This is an unusual video because its much shorter than usual, and the reason for its brevity is that we are highlighting the silliness of buying physical gold. That shouldn’t take long. So here’s goes. When the queues were longest outside the ABC Bullion retail store on Martin Place in Sydney’s CBD, it was the 21st of October and those people were paying A$6994.10 for an ounce of gold or $224,000 for a kilo – which by the way is two ingots each about the size of an iPhone.
The first problem with the queue is that it suggests the rally is nearing a peak. Peaks are common after prices move exponentially as they have recently. And that’s because exponential gains are impossible to sustain. Hopefully there were a few people lining up to sell their gold bullion.
The other problem is that buying gold bullion is a silly way to gain exposure to the gold price. Have a look at this table again supplied by ABC Bullion via email on October the 21st this year.
Let’s just look at the 1kg ABC Gold Cast Bar. You can see that if you are buying bullion on October the 21st 2025, you would have to pay $224,523.90 cents. Now, notice there’s also a sell price of $209,747.80. That’s the price ABC bullion will pay if you want to sell to them. In other words, if you buy from ABC Bullion and immediately sell back to them a second later, you’ve lost almost $15,000 just in the spread. That’s called a very high frictional cost and you need ABC’s buy price to rise seven per cent before you’ve broken even.
Of course you might have received a better price, selling to someone else in the queue! Hey there’s an idea. People can trade among themselves and get a much better deal out the front. Just ask who’s buying and who’s selling.
Since the 21st however the price of gold has dropped significantly.
On the 30th of October 2025 ABC Gold table looks like this…if you want to sell your kilo of gold, ABC Bullion will pay $187,347.90. You are looking at a $37,000 loss or 16.5 per cent. More significantly, you need the price to rise almost 20 per cent to break even on your purchase. Sure the numbers are smaller if you bought one ounce, but the percentages would be similar.
The spot gold price has fallen 8 per cent, but you’ve lost double that if you change your mind and want to sell today. Whats the better option? If you really believe Gold is going to rise, don’t buy physical gold, buy an exchange traded fund listed on the stock exchange through an online broker. You will pay maybe a couple of hundred dollars in brokerage if you are investing $200,000 and you will get the same exposure for a lot lower frictional costs.
I look forward to talking with you again soon.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
