Does It Make Sense to Buy Gram Gold with Credit Card and Pay the Minimum Amount?

Buying gold with a credit card: Minimum payments vs. full payment – 2-year analysis Yields surprising results! Is buying gold monthly with a credit card and only paying the minimum profitable? A 2-year analysis based on historical data says yes during low-interest periods, but no when rates are high.

The Credit Card and Gold Dilemma: Is the Minimum Payment Strategy Profitable?

In today’s economic climate, investment tools are diversifying, and people are trying to grow their savings through various methods. Gold, particularly seen as a safe haven, remains a popular investment choice. But is it a logical long-term strategy to regularly buy gold using a credit card and only pay the minimum amount due each month? Or is this a risky move that could lead to a debt spiral and end in losses? A detailed analysis seeking answers to this intriguing question reveals interesting results based on the past two years of data.

This study, conducted by Vita dememi and modeled using Excel, compares two different scenarios to shed light on the impact of credit card usage habits on gold accumulation. Let’s examine these two scenarios and the remarkable findings step by step.

Scenario 1: 10 Grams of Gold Monthly and Minimum Payments – Nightmare or Opportunity?

The first scenario in the analysis, termed “Hesap 1” (Scenario 1), models a potentially common consumer behavior:

1. Regular Purchase: Starting from January 2022, for a full 24 months (two years), 10 grams of gold are purchased at the beginning of each month using a credit card.
2. Minimum Payment Principle: When the credit card statement arrives, only the legally defined minimum payment percentage (taken as 40% in the analysis) is paid, not the full balance.
3. Interest and Debt Accumulation: For the unpaid portion, the applicable contractual interest rate (akdi faiz) announced by the Central Bank for that month, plus legal taxes (like BSMV and KKDF in Turkey, adding approximately 30% burden), is applied. This interest and the unpaid principal are added to the next month’s debt.
4. End-of-Period Settlement: At the end of 24 months (December 2023), a portion of the gold accumulated so far is sold at the current market price to pay off the total outstanding credit card debt.
5. Net Position: The remaining amount of gold and its market value are calculated to determine the net outcome of the two-year process.

The core dynamic of this scenario is the continuous rollover of credit card debt and the compounding interest. While the individual acquires 10 grams of gold each month, the credit card debt grows exponentially. The critical question here is: Will the increase in gold prices be high enough to offset the accumulated interest burden and still yield a profit?

Details of Scenario 1: Interests, Debts, and Gold

The analysis assumes a credit card with a 100,000 TL limit and zero initial debt as of January 2022.

• First Month (Jan 2022): 10 grams of gold are purchased at the day’s rate (approx. 837.6 TL/gram) for 8,376 TL. The credit card limit drops to 91,623 TL. The statement shows 8,376 TL due. The minimum payment (40%), 3,350 TL, is made. The remaining debt of 5,026 TL rolls over to the next month. No interest accrues for this first month yet.
• Second Month (Feb 2022): There’s a carried-over debt of 5,026 TL. The applicable contractual interest rate for January 2022, including taxes (2.34%), is applied to this debt. This amounts to roughly 117.6 TL in interest. Another 10 grams of gold are purchased in February (at the current price). The new statement includes the rolled-over debt (5,026 TL) + accrued interest (117.6 TL) + the cost of the new gold purchase. Again, only 40% of this new statement balance is paid, and the remaining debt rolls over to March. Meanwhile, a total of 20 grams of gold has been accumulated.
• Subsequent Months: This cycle repeats for 24 months. While 10 grams of gold are bought each month, the credit card debt continuously grows due to the rolled-over principal from the previous month and the accumulating interest. The minimum payment amount also increases as the statement balance grows. The contractual interest rates change monthly based on Central Bank decisions (these changes are factored into the analysis). For instance, there were periods when the interest rates (including taxes) climbed to levels around 4.76%.
• After 24 Months (End of Dec 2023): Minimum payments are made regularly for 24 months. A total of 240 grams of gold has been purchased during this period. However, even after paying the minimum for the December 2023 statement, a significant unpaid balance remains on the card. According to the analysis, this debt is around 29,699 TL.
• Debt Settlement and Outcome: To clear this remaining 29,699 TL debt, a calculation is made using the current gold selling price at the end of December 2023 (approx. 1955 TL/gram). Approximately 15.19 grams of gold need to be sold to pay off the debt. This leaves 224.81 grams of gold from the initial 240 grams.

In this scenario, the total amount paid to the credit card over 2 years (only minimum payments) is 283,619 TL. The value of the remaining 224.81 grams of gold at the end of December 2023 is calculated to be approximately 439,661 TL.

Scenario 2: No Interest, No Risk! But Is There Profit?

The second scenario, termed “Hesap 2” (Scenario 2), represents a more conservative approach. The goal here is to see the outcome of investing the same amount of money in gold without incurring the interest costs seen in the first scenario.

1. Equal Spending: Each month, an amount of money equal to the minimum payment made in Scenario 1 for that specific month is spent to buy gold directly. For example, if the minimum payment in Scenario 1 for January 2022 was 3,350 TL, then 3,350 TL worth of gold is bought in Scenario 2. Whatever the minimum payment amount was in Scenario 1 for February 2022, that’s how much is spent on gold in Scenario 2, and so on for 24 months.
2. Full Payment: Even if a credit card is hypothetically used, the entire amount spent is paid off when the statement arrives. Therefore, no debt rolls over, and no interest accrues.
3. Gold Accumulation: Each month, gold is accumulated based on the spending amount for that month and the current gold purchase price. Fractional grams are theoretically included in the calculation.
4. End-of-Period: At the end of 24 months (December 2023), there is no credit card debt, and the total amount of gold accumulated and its value are calculated.

This scenario eliminates interest costs but makes the amount of gold purchased each month variable. Unlike the fixed 10 grams in Scenario 1, the amount purchased corresponds to the minimum payment value from Scenario 1 for that month.

Details of Scenario 2: Steady Accumulation

• Spending and Gold Purchase: In January 2022, the minimum payment in Scenario 1 was 3,350 TL. In Scenario 2, this amount buys approximately 4 grams of gold at the January 2022 purchase price. In February 2022, the spending equals Scenario 1’s (slightly higher) minimum payment, buying gold at February’s price (e.g., 6.53 grams). This continues for 24 months.
• Debt and Interest: Since any credit card spending is paid in full monthly, there is no rollover debt or interest. The credit card limit (100,000 TL) is more than sufficient in this scenario.
• After 24 Months (End of Dec 2023): The total spending (and thus total payment) over 24 months is identical to the total minimum payments made in Scenario 1: 283,619 TL. The total amount of gold accumulated during this period is calculated to be 221.19 grams.
• Net Position: Credit card debt is zero. The value of the 221.19 grams of gold held at the end of December 2023 is approximately 432,564 TL.

The Comparison and the Surprising Result: Did Interest or Gold Win?

Now we arrive at the crucial point: Which scenario was more profitable? In both scenarios, the total money out of pocket over the two years was the same: 283,619 TL. The difference lies in how much gold was acquired with that money.

• Scenario 1 (Minimum Payment): 224.81 grams of gold (Value: 439,661 TL)
• Scenario 2 (Full Payment): 221.19 grams of gold (Value: 432,564 TL)

The Verdict (for Jan 2022 – Dec 2023 period): It might seem unbelievable, but for the specific two-year period analyzed, buying 10 grams of gold each month and only paying the credit card minimum (Scenario 1) turned out to be more profitable than investing the same total amount of money in gold without incurring interest (Scenario 2). Scenario 1 resulted in accumulating approximately 3.6 grams more gold, creating a value difference of about 7,100 TL.

How was this possible? The answer lies in the economic conditions of the analyzed period (Jan 2022 – Dec 2023). Due to policies implemented, especially before the 2023 elections in Turkey and for some time after, credit card contractual interest rates remained significantly lower than the rate of inflation and the increase in gold prices. In essence, the cost of borrowing (interest) was lower than the return on the investment vehicle (gold). This situation made leveraged investing (borrowing to invest), although risky, mathematically profitable. Even though the total interest paid in Scenario 1 was around 10,706 TL, the advantage gained by consistently buying 10 grams of gold seemingly outweighed this interest cost.

What If Interest Rates Had Been High? Would the Scenario Reverse?

The analyst performed another critical test at this point: What if the credit card interest rates during this two-year period had remained at the higher levels seen around the time of the analysis (e.g., around 4.75% including taxes)?

When the calculation was repeated with this assumption, the picture completely flipped!

• Scenario 1 (Minimum Payment with High Interest): The amount of gold remaining at the end decreased.
• Scenario 2 (Full Payment): The result remained unchanged (as there’s no interest).

In a high-interest environment, the accumulated debt in Scenario 1 grows much faster, and the amount of interest paid skyrockets. In this case, more gold needs to be sold at the end of the two years to cover the debt, resulting in a net amount of gold that falls below the amount accumulated in Scenario 2 (interest-free accumulation).

This demonstrates that the success of the strategy is entirely dependent on the prevailing interest rates during the period it’s implemented. The minimum payment strategy, which appeared profitable in a low-interest environment, can quickly turn into a loss-making venture when interest rates rise.

Final Thoughts

This detailed analysis reveals that the strategy of regularly buying gold with a credit card and only paying the minimum amount due can be mathematically profitable under specific economic conditions (particularly low interest rates). However, it carries high risks and is extremely sensitive to changes in interest rates.

The fact that Scenario 1 (minimum payment) came out ahead for the January 2022 – December 2023 period was purely thanks to the unusually low contractual interest rates prevalent during that time. Implementing the same strategy in current or future periods where interest rates are higher would most likely result in lower profits or even losses compared to Scenario 2 (interest-free accumulation).

It must be remembered that this study is a theoretical modeling based on historical data and may not fully reflect real-life factors such as jeweler markups (bid-ask spreads), instantaneous price fluctuations, or potential credit limit constraints. Most importantly, this is not investment advice. When making financial decisions, it is crucial to consider your personal situation, risk tolerance, and current economic conditions, and seek professional financial advice if necessary. Continuously rolling over credit card debt and paying only the minimum is generally discouraged due to high interest costs and is a habit that can lead individuals into financial hardship.

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