Question 1: I’m interested in buying into gold. Can you please advise the pros and cons re buying physical gold versus ETFs versus direct investment in Newcrest/other gold miners? Is an investment in physical gold allowed in an SMSF?

Answer: There are three broad options for investing in gold.

Firstly, buying physical gold from places such as the Perth Mint. Advantages include perhaps finer pricing on the spread, potentially no management fees and if your holding is big enough, you may be able to lend it out (and earn a fee). Disadvantages – potentially insurance, holding and transportation costs.

Secondly, and I think the easiest method, via an ETF such as GOLD (this is the ASX code). Traded on the ASX. Disadvantage is the ETF provider’s management fee.

Thirdly, buying gold shares such as Newcrest. Advantages include that this will give you the greatest leverage, as miners usually have some fixed production costs, so a small increase in the price of gold can mean a big increase in profits. Also, most of their costs are in $A, while gold is priced in $US, so they can win (or lose) due to movements in the exchange rate. Disadvantage – highest risk. General advice here is to stick to established producers, particularly those with a low cost of production.

I have never been a gold bug, so for me, I would look at an ETF.

No problem for an SMSF holding gold. If you want to invest in physical gold, I would probably include a reference to this in the Fund’s investment strategy.

Question 2: What’s your thoughts on Commonwealth Bank (CBA) at the present scenario? 

Answer:  I see no reason to sell the banks because I can’t see what the alternatives are. Commonwealth Bank is a little bit pricey, trading on a multiple of 16.4 times forecast FY20 earnings. Westpac is on a multiple of 13.2 times, NAB 13.4 times. ANZ is cheaper but may have to do something on the capital side to cater for the regulatory rules in NZ.

The analysts don’t like CBA – with 3 neutral recommendations and 4 sell recommendations, and a target price of $73.01.

I would probably buy Westpac over CBA.

Question 3:  I am a pensioner and have accumulated a modest amount of savings which I keep in a term deposit account. The focus constantly is on pacifying mortgage holders, their struggles, and why people aren’t spending more to stimulate the economy. Senior pensioners also contribute to the economy by spending. If their interest returns are negligible, they will spend far less. My question is this: why can’t the financial system reward those who save with interest rates specific to them? Banks are benefitting from their deposits – why not reward them with higher savings returns? This could boost the spending power of this group and help the economy generally.

Answer: I don’t disagree with the sentiment. The focus from Government and the media is always about “home borrowers” – no one seems to consider the other side –  pensioners, retirees and others who are “depositors”. Banking is about a margin – the difference between a bank’s cost of funds, and what it earns on those funds from the provision of loans. If banks were to pay more for their deposits, then either: (i) they would need to increase their loan rates; or (ii) cut their margin, reduce revenue, and cut profits. The latter would impact bank shareholders, many of whom are self-funded retirees and part pensioners.

I also wrote about this is today’s Switzer Daily – see http://switzer.com.au/depositors-will-lose-from-new-bank-bashing-inquiry/