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What Are Gold Credit Cards & Do They Matter?

There are so many different types of “gold” credit cards available for consumers to take advantage of. These range from gold American Express cards to cards made of solid gold, to those where you buy gold bullion bars and borrow against them. In this article we are going to answer what are gold credit cards in the latter sense.

So What Are Gold Credit Cards?

It’s simple. A gold credit card is a credit card where you borrow money against gold you already own. You might do so because you own a large amount and the cost of liquidating it is too high to bother with. Or you might do so because you are long on gold (you believe it will go up over the long term). As such, whether you go for bars or you buy gold coins, you have a convenient way of temporarily taking some of that tied up capital and making it work for you.

You may wonder, however, whether you can use one of these cards if you don’t currently own gold? The answer is yes. In fact, most companies would be very happy to sell you the gold you borrow against. To understand why you might do so needs a little more thought.

Why Should I Know What Gold Credit Cards Are? How Does This Affect the Average Investor?

The truth is that day-to-day retail investors hardly think about trying to leverage existing investment assets to free up cash flow. In reality, the idea of trying to double-dip is an institutional concoction. And a very dangerous one at that. Leverage is an addictive and potentially fatal way of boosting your returns. In the immortal words of John Maynard Keynes, “Markets can stay irrational longer than you can stay solvent.”

Still, if you’re type of person who likes to flash your status in a subtle (yet not-so-subtle) way, this certainly works. You will find many an ear at cocktail parties that would look to a credit card backed by gold just as eagerly as a credit card made of it.

If you can’t already tell, I don’t think highly of these cards. It is unlikely the average person will be able to sustainably invest with a risk-adjusted return higher than the interest rate we would pay. Furthermore, it seems silly to own gold as an insurance policy when you don’t fully own it.

What Are Gold Credit Cards Good For?

The Bullion Card was issued by IMGold in 2014 to give gold owners the opportunity to borrow against it. To be eligible for the credit card, which is made of 14-carat gold, applicants must have at least $100,000 worth of gold stored in the IMGold’s Isle of Man vault.

By having assets to back your borrowing against, credit card holders will be able to access credit limits they might not have otherwise been offered. The security of the gold also allowed IMGold to offer borrowing rates below 10% APR. Still, that’s a lot to pay for collateralized debt.

The card would be particularly appealing to those who bought gold before its huge value dip in 2011 and are sitting on losses. It offers them the chance to get some liquidity in the meantime. Our guide on what causes gold prices to go up and down can help you decide whether now is a good time to invest in gold bullion and coins.

The Golvercard offers similar options to those with reserves of precious metal. Rather than a borrowing option, cardholders can immediately convert cash into gold and silver reserves when they make a deposit on their card. These reserves are converted back into fiat currency whenever the card is used to make a payment.

Those who deposit $30,000 or more will be issued a solid 24-carat gold card. Perhaps the world’s most exclusive of such is the diamond-studded Exclusive credit card from Sberbank in Kazakhstan. This card will set you back $100,000, although it comes with a ton of questionably worthwhile perks including a free smartphone, concierge service and insurance products. You might want to think twice before it leaving it with the waiter at a restaurant though.

Arguably, this could be a good option for those who believe it’s useful to have gold in their investment portfolio. Check out our guide on how much gold you need in your portfolio to help you decide the size of your initial deposit.

Now That I Know What Gold Credit Cards Are, Should I Get One?

There is no clear disadvantage to investing in a credit card backed by gold. The expert advice given to those using it would be the same as that issued to normal credit card holders. That is, pay your balance off in full every month to avoid charges. The real downside is that your precious metals are hidden off in a vault and may not ever be owned by you. So much for an insurance policy. In fact, if you don’t feel comfortable putting money into gold because you might need it, don’t put the money away in the first place. Keep it in cash. And when you are ready to invest, go ahead and do it the right way. Hold onto what you own.

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