Gold vs. Art: Which is the Better Investment?

Investing in assets is fundamental for growing wealth and securing financial stability.

But when it comes to deciding where to put your money, are you better off buying gold or investing in artwork? 🤔

Choosing the right asset class hinges upon your investment goals and your tolerance for risk.

For centuries gold has been considered a safe-haven asset. A secure and dependable way of storing wealth in times of market volatility or high inflation.

With its long-term price stability, it’s an essential part of any good investment portfolio. 🌟

🖼️Art investments meanwhile can sometimes offer high returns. Especially if an emerging artist suddenly becomes popular, or an investor picks up a bargain at an auction house.

But deciding on whether to invest in art or gold depends on your investment goals:

• Are you saving for a short-term goal like a wedding? 👰
• Do you have a medium-term target of buying a home? 🏠
• Perhaps you’re investing for your retirement?👴

Whatever you’re saving for, it’s important to align any investment choices you make with your individual goals. This way you can track potential returns and effectively manage risk.

Here, we compare gold and art as investment options.

Why is liquidity important in an investment?

🌊Liquidity is how easy it is to sell something and get cash in return.

The more liquid an asset is, the easier (and faster) it is to sell or convert into usable money.

In short: the more liquid your asset, the less likely you are to lose money when selling it.

Property, land, and machinery are all types of non-liquid assets. They can be more difficult to sell. Especially at speed.

This is one of the major differences between investing in art and gold.

🪙Physical gold is a liquid asset. Available in standardised forms, such as coins and bars, makes it easier to trade in a well-established global market.

This means that, in general, sales can happen relatively quickly and at transparent market prices.

Remember that if you store your gold at home and later decide to sell it to a local gold store, you may face additional fees.

Art assets generally exhibit lower liquidity compared to gold.

This is because buying and selling art often involves a more intricate process, necessitating assessments of the artwork's authenticity, provenance, condition, and market demand.

Art transactions typically take place through galleries, auction houses, or private sales. They can be time-consuming to complete thanks to negotiations and evaluations.💸

What’s more, art investment is considered speculative. The value of art can be driven by external factors like an artist’s reputation, market trends, and individual preferences.

🖥️Take non-fungible tokens (NFTs) as an example. Once heralded as the future of art collecting (the tokens use blockchain as a digital certification of the authenticity and ownership of an asset), the price of NFTs collapsed in September 2023. Most are now worthless.

Liquidity issues and high transaction costs in the art market also contribute to its speculative nature. 📉

Be careful to conduct thorough research and weigh up the risks before you invest.

Gold vs. art: investment risks

Gold is generally viewed as a stable investment as It offers a reliable store of value and tends to act as a hedge against economic uncertainties.

Art investments, meanwhile, usually carry a higher level of speculation due to their subjective valuation and reliance on market dynamics. This makes them more susceptible to price fluctuations. They can be more challenging in terms of risk, too.

Advantages of investing in gold

• Hedges against economic uncertainty. The value of gold tends to rise during economic trouble, making it a reliable asset to protect your wealth.
• Portfolio diversification. Gold can be an effective tool for diversifying your investment portfolio. Its low correlation with assets like stocks and bonds helps spread risk, enhancing stability.
• 🏏To beat inflation. The value of gold often rises as the purchasing power of fiat currencies decreases due to inflation.
• Wealth preservation. Gold has historically maintained its value in the long term, making it a safe way to store your wealth.
• Liquidity and global acceptance. Highly liquid, gold can be quite easily bought or sold in various markets worldwide.
• Profit potential. Gold can provide potential gains to investors if markets rise. When the price of gold increases in the market, investors who hold gold can sell it at a higher price than what they paid for it, resulting in potential gains. But it’s important to keep in mind that the profit potential in gold is closely tied to market movements, and is different from that of stocks or property.
• Potential tax benefits. Investors save money on taxes when buying investment-grade gold because it's exempt from VAT in many countries.

Disadvantages of investing in gold

• Lack of income generation. Unlike stocks or property, gold does not generate any regular income like dividends or rental yields. It relies on price appreciation for returns.
• May require storage costs. Storing physical gold securely can incur costs, whether it's stored in a safe deposit box, a vault, or through a third-party storage service. (Unless you choose our secure free storage solution for your gold bars and coins 😉)

Advantages of investing in art

• Potential for high returns. Works by renowned artists or emerging talents have the potential for substantial appreciation in value over time, offering significant returns on investment.
• Portfolio diversification Adding art to an investment portfolio potentially reduces overall portfolio risk due to its typically low correlation with traditional financial assets.
• Tangible asset. Just like gold, art is a tangible asset, providing aesthetic enjoyment and cultural value, in addition to its investment potential.
• Exclusive ownership. Owning a piece of art offers a sense of exclusivity. It's unique to you, and not everyone can have the same piece.💍
• Potential tax benefits. In some jurisdictions, such as the UK and the US, buying art can be tax deductible.

Disadvantages of investing in art

• Subjectivity and volatility. The value of art is highly subjective and can be volatile, influenced by trends, tastes, and economic factors, making predicting its appreciation challenging.
• Lack of liquidity. Art is considered illiquid, as selling artwork can be time-consuming and uncertain. Finding a suitable buyer and negotiating a price can take a significant amount of time.
• High transaction costs. Buying and selling art often involves high transaction costs, including auction fees, dealer commissions, insurance, transportation, and storage expenses.
• Authentication and provenance. Verifying the authenticity, provenance, and condition of some artworks can be challenging. Forgeries can lead to a loss in investment value.
• Lack of income generation. Owning art does not generate income, such as dividends or interest, and only provides a potential return upon sale.

Portfolio diversification

Gold and art are both valuable for portfolio diversification, a strategy that spreads investments across a variety of assets to mitigate risk.

Not putting all your eggs in one basket, if you will.🥚

By diversifying, investors seek to minimise the impact of adverse events in any one sector or asset, thus enhancing the stability of their portfolio.

Adding gold to your portfolio

Having gold in your portfolio is beneficial as its market price works upon the fundamentals of demand and supply rather than its correlation with other assets such as oil prices and the weakness of currencies. 

Art as an investment in your portfolio

🎨 Adding art to your investment portfolio will also potentially strengthen its resilience.

The price of art has a low correlation with traditional financial markets, driven instead by factors unique to the art world. That makes it less affected by economic cycles.

As a tangible asset, art also has an intrinsic value, which means it can be a store of value independent of the performance of the financial market.

This can be a good thing during economic downturns. 

Over the last five years, the compound annual growth rate of Banksy's artworks has increased by 26%.📈

However, this is not always the case. As artists fall out of favour, the losses can be huge as well.

‘The Merge', the world’s most expensive NFT, sold for $91.8 million in December 2021.

In June 2023, research found that 95% of NFTs are now effectively worth nothing.

Whilst that’s an extreme example, even works by the likes of Damien Hirst have lost as much as 30% of their value over time.

So whilst art can yield substantial returns, it’s also seen as a speculative investment.

Tax implications for buying gold vs. buying art

🤓The tax implications of buying gold and art will depend on several things, including:

• what you are purchasing;
• how much you are buying;
• the jurisdiction where you pay tax.

Here’s an overview of what you need to know about the tax implications for buying gold vs. buying art:

Current tax rules

Investment-grade gold is not subject to VAT throughout the EU, the UK, and the USA.

When selling works of art in the USA, you may be eligible for a capital gains tax rate of up to 39.6% if you’ve owned the artwork for less than a year. For works held longer than a year, the rate drops to a maximum of 28%.

How to determine risk tolerance

Risk tolerance (sometimes called risk appetite) is how much you're willing to gain or lose on an investment.

Investments can generally be split into three categories:

• Low-risk investments such as high-yield savings accounts and corporate bonds;
• Moderate-risk investments such as property and mutual funds;
• High-risk investments such as cryptocurrency, and venture capital.

In short: the greater the risk, the greater the rewards – but the greater the chance of losses too.

This is why it’s good to first work out your financial goals:

• How long are you hoping to invest?
• What returns do you hope to see?

Short-term goals may require more stable and less volatile investments, while long-term goals may allow for higher-risk investments that potentially offer greater returns.

You will also need to analyse your capacity for handling losses. It’s best to only invest what you can afford to lose.

Gold vs. art: risk assessment

Now it’s time to link your appetite for risk to your investments.

Gold is historically considered a lower-risk investment due to its stability. If you want to invest in an asset but minimise your risk, gold can make a great portfolio choice.

Art on the other hand is more speculative. Subject to market trends and individual preferences, works tend to have more volatility – and potentially higher risk.

However, the returns can be much higher if you buy the right painting.🖼️

For balance, aim for a diversified portfolio that includes a mix of assets like gold, art, stocks, bonds, and property to mitigate your overall risk.

Transaction costs

💳Transaction costs are also an essential aspect of buying and selling both gold and art assets.

These costs can impact your overall return on investment, so carefully consider the following ahead of purchase.

Gold transaction costs

From the initial purchase cost and dealer commissions to storage fees, paying for security and covering the price of insurance, there are plenty of things to think about before buying gold.

Each company charges fees in different ways. Some require management fees; others will only ask for a commission when you sell.

To get a true sense of your investment, carefully work out both upfront and ongoing costs.

Things to look out for:

• Premium over spot price. When buying physical gold, there can be a premium paid over the spot price (the market ‘melt price’) to cover production and operational costs.
• Storage costs. Calculate any storage fees. Many are likely to be ongoing.
• Insurance. Essential for protecting your investment from theft and damage. By the way, our free storage solution comes with insurance coverage. ⭐
• Selling fees. Some dealers will charge gold, and you may receive slightly less than the spot price due to market dynamics and the dealer's spread.

Art investment transaction costs

When purchasing art as an investment, there are a lot of additional costs to consider, including auction house fees, insurance, maintenance and preservation costs, and much more.

Be sure to work out both the upfront and ongoing costs as well as any fees you’ll need to pay when you sell your art. Things to look out for:

• Auction fees If buying art at an auction, auction houses charge a buyer's premium, typically a percentage of the winning bid, in addition to the bid amount.
• Dealer or gallery commissions The fee added to the sale price by an art dealer or the gallery.
• Insurance Your art should be insured to protect against theft, damage, or loss. Premiums will vary based on the artwork's value.
• Preservation Depending on the nature of the art, you may need to pay maintenance and preservation costs, including restoration
• Storage fees Unless displaying at your home, expect to stump up for climate-controlled storage.
• Selling fees Whether you’re selling via an auction house or a dealer, you will also have to pay a fee to sell your artwork.

So if we were to compare the average costs of buying gold on GOLD AVENUE, vs. the costs of purchasing art as an investment at an average, here’s what it would look like:

Based on this table, from a cost point of view, it seems like gold might be a better option.

Start your gold-saving plan with GOLD AVENUE today!