Investing in Gold

Gold can be a very useful way to diversify your portfolio. It’s relatively rare, and its value often doesn’t move in line with other assets such as equities or property.

At Capital & Conflict, we’ve said that gold provides insurance for your portfolio. Most people should probably allocate around 5%-15% of their portfolios to gold or gold-related investments. So the follow-up question is: how should you invest in gold?

Invest in physical gold

Physical gold is worth holding because it’s a universal finite currency, held by most central banks.

In the same way that the family home should not be regarded as an investment, gold bullion is not an investment per se, rather a form of ‘saving for a rainy day’ or of financial insurance. You shouldn’t trade your gold. You wouldn’t trade an insurance policy, so don’t trade your gold.

Gold is a good way to ensure wealth preservation and for passing wealth from one generation to the next. Once you’ve got some gold bullion in your portfolio, then other investments such as mining shares, investment funds and other more speculative gold investments can be considered.

Modern bullion coins and bars

Modern bullion coins allow investors to own investment-grade gold legal tender coins at a small premium to the spot price of gold as quoted on the markets.

The value of bullion coins and bars is determined almost solely by the price of gold, and thus follows the bullion price.

Gold, silver, and platinum are all available in the form of bullion coins, minted in the UK, the US, in Canada, South Africa, Austria, Australia, China and other countries. Most bullion coins are minted in 1/10oz, 1/4oz, 1/2oz & 1oz form (and some can be bought in 2oz, 10oz & 1 kilo). However, one-ounce gold bullion coins such as Krugerrands or Britannias are by far the most popular for both small investors and high-net-worth individuals who see the advantages of owning legal tender bullion coins, either in their possession or in depositories, and recognise the advantages of the divisibility afforded by them.

Buying investment-grade gold bullion for investment is stamp-duty free and tax free (VAT exempt) in the UK and EU due to the EU Gold Directive of 2000.

Semi-numismatic and numismatic gold coins

Numismatic or older and rare coins are bought not solely for their precious metal content, but also for their rarity and their historical, aesthetic appeal. They are leveraged to the gold price, which means that the price of these coins will generally increase faster than the gold price in a bull market and will decrease by more when gold is in a bear market.

The British gold sovereign (originally the one pound coin) is the most widely traded and owned semi-numismatic gold coin in the world. It’s worth noting that British gold sovereigns are also exempt from capital gains tax (CGT).

Gold certificates

The Perth Mint Certificate Programme is the only government backed precious metal certificate programme in the world. It allows you to own investment grade gold which is stored in vaults in the Perth Mint of Western Australia.

The gold is stored in a government mint and insured by Lloyds of London.

That said, this is ‘unallocated gold’. That means that you don’t own actual gold, you own a promise from the Perth Mint to give you back your gold if you want it. (With ‘allocated gold’, you are the legal owner of the gold, and the account provider is the custodian.)

There are no initial or ongoing shipping, insurance, holding or custodial fees and thus it is one of the most cost effective ways for investors to own bullion over the long term.

Most investors opt to own their bullion in unallocated accounts as there are no insurance or holding fees on them, and there is the flexibility of being able to transfer to an allocated account simply by paying small fabrication fees should the investor deem it necessary.

Allocated accounts

Allocated gold accounts allow an investor to buy gold coins and bars from a bullion brokerage which will transfer or ship the bullion to an individual’s account in a depository or bank. Allocated accounts involve ownership of specific gold and the owner has title to the individual coins or bars. Due diligence should be done on allocated gold account providers and the history, security, credit rating and net worth of the provider is of vital importance.

Two respected providers are Bullion Vault and Gold Money. They offer allocated accounts where gold can be instantly bought or sold. Every gold bar is audited and accounted for and it is considered a safe way to own bullion.

Digital gold currency or e-gold

Digital gold currency (DGC) – ‘goldgrammes’ or ‘e-gold’ – are also increasingly popular. There are no specific financial regulations governing DGC providers, so they operate under self-regulation. DGC providers are not banks and therefore do not need to comply with bank regulations, and there are concerns that there are unscrupulous operators operating in this emerging sector.

Digital gold is primarily used by clients to buy gold for saving or as an investment and/or as electronic money amongst users.

Investing in paper gold

Another approach is to invest in companies that either mine gold or are exploring for new gold deposits. Some companies are both miners and explorers.

If you’re going to invest in mining companies, it’s a good idea to diversify your investment across several companies. Investing in a miner is riskier than investing in gold itself.

You can also invest in gold via financial products such as options, futures and spread betting.

With all of these products, you’re betting on the future movements in the gold price. You don’t own any gold, and you don’t have the right to take possession of any gold.

All of these products give you the opportunity to ‘leverage’ your investment. In other words, you can borrow to boost the size of your bet. That will boost your profits if the gold price goes in the right direction, but it can also increase your losses if things go wrong. You could end up losing all of your original investment, or potentially a sum greater than your original investment.

Gold exchange-traded funds (ETFs)

These are funds that track the price of gold.

Two of the more popular are the Streettracks Gold Shares (NYSE:GLD) and in London, ETF Securities’ Gold Bullion Securities (LSE:GBS). They can be bought through stockbrokers.

There is normally an annual administration fee of between 0.4% and 0.5%.

• This article was written by Mark O’Byrne, Head of Research at GoldCore.

What’s the best way to invest in gold bullion? James McKeigue explains everything you need to know – whether you're buying gold coins or gold bars.
Continue reading
There are many ways to buy gold. But gold sovereigns give you precious metal content plus rarity and historic and aesthetic appeal. Nick Hubble explains it.
Continue reading
Free and impartial comparison of leading gold brokers, with advice and guides on where and how to buy bullion coins and bars.
Continue reading
Eoin Treacy analyses one of the most storied ratios in finance, the Dow/gold ratio, and shows why the stockmarket could be on the verge of a big breakout.
Continue reading

Latest Investing in Gold articles

  • Eurowhat?

    Earlier this year, I visited New York to attend a relative’s wedding. While I was there, I thought I’d take a look at the physical gold and silver scene there (among other things), and sought out a bullion dealer near…

    View this article
  • How to buy gold bullion

    There are many ways to invest in gold, from exchange-traded funds (ETFs) to gold stocks, but the simplest way is to just buy physical gold – or bullion – outright. But what’s the best way to invest in gold bullion? We…

    View this article
  • The german gold bomb

    It’s straight out of Die Hard 3. In that movie, Jeremy Irons’ evil character – an East German pretending to be a Dutchman – derails a subway train in New York. And then happens to show up – pretending to…

    View this article
  • The hidden gold quadrant profits recipe

    It’s been a long time since gold graced the pages of the financial media. Except for the occasional sudden plunge in the gold price, which gets blamed on fat fingered traders pushing the wrong buttons. I hope you’ve been busy…

    View this article
  • Why Gold Goes Up

    DUBLIN – Gold dropped sharply on Monday. The yellow metal fell about 1% to as low as $1,236. A “fat finger” was blamed, meaning it was probably a mistake. According to reports, a single trader sold 1.85 million ounces of…

    View this article
  • Why you should buy gold sovereigns

    Gold is a small but crucial part of the portfolio of the modern day investor. It always has been. But the financial industry has slowly tried to sway the British public against the precious metal. It’s obvious why financial advisors and…

    View this article
  • How to invest in silver

    Gold gets all the attention. But that means there’s an opportunity to invest in gold’s smaller brother, silver. Especially right now, as I’ll show you in a moment. But why invest in silver in the first place? It has many…

    View this article
  • A beginner’s guide to investing in gold

    Gold can be a very useful way to diversify your portfolio. It’s relatively rare, and its value often doesn’t move in line with other assets such as equities or property. At Capital & Conflict, we’ve said that gold provides insurance…

    View this article
  • How and where to buy gold coins and bars

    Many people are intimidated by the idea of buying physical gold as an investment. But it isn’t any different to buying jewellery or diamonds. You simply go to a shop and purchase it. Just like jewellery, there are more reputable…

    View this article
  • Will stocks beat gold until 2034?

    Quick. Answer on your gut. Where’s the best place for your money today, stocks or gold? OK, so perhaps that’s an unfair question. I don’t expect you to answer important questions about your finances on a “gut feeling” – although,…

    View this article

From time to time we may tell you about regulated products issued by Southbank Investment Research Limited. With these products your capital is at risk. You can lose some or all of your investment, so never risk more than you can afford to lose. Seek independent advice if you are unsure of the suitability of any investment. Southbank Investment Research Limited is authorised and regulated by the Financial Conduct Authority. FCA No 706697. https://register.fca.org.uk/.

© 2017 Southbank Investment Research Ltd. Registered in England and Wales No 9539630. VAT No GB629 7287 94.
Registered Office: 2nd Floor, Crowne House, 56-58 Southwark Street, London, SE1 1UN.

Terms and conditions | Privacy & cookie policy | FAQ | Contact Us | Top ↑