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.

Investors’ Pick: Ultimate Guide to Understanding the Price of Gold

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.

Check out this interactive map and explore the main cryptocurrency players, both pro and against cryptos. Dive in our list of the most friendly countries.
Continue reading
Bitcoin is the world’s first and most famous cryptocurrency. Is Bitcoin more like gold, or is it just another fiat currency? Read on for more.
Continue reading

Money is changing

Money is changing. The way we spend it. The way we make it. And the way we store it. Bitcoin is becoming a very compelling asset for investors.
Continue reading
The blockchain records transactions in digital currencies such as bitcoin and records them in a manner thought to be incorruptible. Find out more...
Continue reading

Latest Investing in Gold articles

  • If you could have your time again

    Your regular editor Boaz Shoshan remains on holiday. And Kit Winder is busy researching the stocks you’ll want to buy in coming months. So it falls to me, Nick Hubble, to carefully avoid talking about Brexit today. Was yesterday the…

    View this article
  • The Assassination of Bitcoin

    Editor’s Note: The Bonner & Partners offices were closed last Friday for the Thanksgiving holiday weekend. In lieu of our regularly scheduled Diary, we share the below guest essay from Bill’s righthand man, Dan Denning. As Bill reported previously, central…

    View this article
  • No nukes for me

    Have you been investing in Iranian nuclear technology? If you have, I applaud your audacity. Fortune favours the bold, and investing moves don’t get much bolder than trying to profit from Iranian nukes. To be clear: I have not been…

    View this article
  • Bitcoin Works!

    BALTIMORE – Last week, we attended a conference in Miami. Several crypto enthusiasts were there… including Teeka Tiwari and our own “in-house” expert, one of our sons. The price of bitcoin has fallen from a high of around $20,000 to…

    View this article
  • Top Crypto Friendly (and Hostile) Countries

    Blockchain is the technology that makes bitcoin function. But bitcoin and other cryptocurrencies are only one application for blockchain technology. In fact, they might not be the most important one. Right now, the Australian Securities Exchange is preparing to convert…

    View this article
  • Crunch time comes for cryptocurrencies

    Cryptocurrencies are marketed as an anti-government and anti-establishment alternative. But can they survive a government and establishment onslaught? Because they’re getting one. Facebook, Google and potentially Twitter will ban cryptocurrency advertising on their platforms. That includes advertising of related products….

    View this article
  • Proof in your wallet why cryptocurrencies will succeed

    Ever found yourself with a Scottish banknote south of the border? Or a Northern Irish one on the wrong side of the water? Britain still has ten note-issuing banks. These are banks who issue their own pound banknotes. They look…

    View this article
  • Get ahead of the Great Crypto Escape

    The next financial crisis is coming. Never mind what it is though. You don’t really need to know. What you do need to know is that they happen with a certain regularity. And we’re well overdue. We don’t look at…

    View this article
  • An impossible crash

    Bitcoin continues its bear market. Or is it a correction? The cryptocurrency has lost about 60% of its value from the highs. And it’s heading down in a steady trend of lower lows and lower highs. That’s a bear market,…

    View this article
  • Is bitcoin a fiat currency?

    What it is it you buy when you get a bitcoin? Is bitcoin more like gold, or is it just another fiat currency? Yes, my friends. We’re going well and truly down the rabbit hole. If you’d rather not question…

    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/.

© 2019 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 Policy | Cookie Policy | FAQ | Contact Us | Top ↑