Best and cheapest ways to buy or invest in gold

Best and cheapest ways to buy or invest in gold

Sarah Coles, personal finance analyst at investment firm Hargreaves Lansdown, explains how you can invest in gold.

loveMONEY Expert Panel

Investing and pensions

loveMONEY Expert Panel
Updated on 1 April 2020

Gold has long had a reputation as a safe haven for investors during difficult times.

That's why the price of gold recently hit a seven-year high of $1,700 an ounce as investors piled in amid concerns over the global impact of Coronavirus.

During the last global financial crisis, it reached a staggering $1,900 an ounce.

But while there's no doubting its popularity during uncertain times, this so-called safe-haven investment does come with a number of risks.

Sarah Coles. (Image: Hargreaves Lansdown)Things to consider before you invest

A major component of the price has nothing to do with any real-world uses of gold and is simply due to demand from investors: this means the price can be very volatile.

Gold also suffers from the fact it attracts no interest and delivers no dividends although interest rates are currently at a record low.

So, it can be a risky strategy to hold a significant part of your portfolio in this commodity.

Yet some investors like to keep a small proportion of their diversified portfolio in it, as a hedge against uncertainty in the world economy.

TallyMoney: what are the pros and cons of linking your bank account to gold?

How do I invest in gold? 

If you want to invest in gold, there are four ways to do this:

  1. Physical gold

You can buy coins and bullion bars, either to hold yourself or to be held by a dealer.

In the UK, sovereign and Britannia coins are among the most common ways to buy physical gold, partly because some coins are not subject to Capital Gains Tax (CGT).

If you choose this route, bear in mind that not all coins are equal, so the price may also depend on demand for the specific date, design and weight of that coin.

Alternatively, you can buy ingots, but the cost makes it prohibitively expensive for most people and you may have to pay CGT on any gains.

It’s hard to assess the precise cost of investing, but dealers make their money on selling gold for a premium and buying it back at a discount, so you could lose 3% to 5% of the value this way.

You also need to consider the costs of storage. This means either arranging secure storage and insurance yourself (it’s not usually covered by home insurance) or paying a dealer to store it for you.

There is often a minimum charge for storage, starting at around £10 per month.

Best ways to buy and store physical gold

  1. Trading portions of physical gold

Some companies may be able to hold gold in their vault and allow you to buy and sell small portions via an investment platform.

The Royal Mint is one of the most popular options. You can buy gold coins from around £175 and the smallest gold bar from £65.

If you want to sell gold bullion bars and coins via The Royal Mint, check out its calculator

  1. Exchange-traded commodities (ETCs)

The easiest and cheapest way to invest in gold is through an ETC – the commodity version of an exchange-traded fund (ETF), which will track the price of gold.

ETCs are structured as shares, so you can buy and sell them on investment platforms and hold them in a Stocks and Shares ISA.

There are two versions: gold-backed ETCs will hold gold in a vault and track the price of it, while synthetic gold ETCs are designed to track the price of gold by buying gold-related derivatives.

If you opt for the latter, bear in mind you are taking on the additional risk associated with the third party selling the derivatives.

ETCs are low cost compared to the other ways of holding gold, although the price you pay will depend on the platform you use and the ETC you choose.

As a rough indication, Hargreaves Lansdown charges up to £11.95 to buy and sell an ETC online, and the fund may make an annual charge typically of 0.45%.

  1. Gold shares and funds

You can invest in the shares of companies involved in the gold business, including miners and distributors.

But before considering this approach, it’s worth bearing in mind the price of these shares and funds depends on more than the price of gold.

For example, the costs incurred by miners should be considered, especially as mining gold can be difficult and expensive, as well as the effect of market movements.

If you were planning to use gold to hedge against possible falls in the stock market, you may be diluting that effect by investing in shares.

We visited a gold retailer to learn more about buying and investing gold

The views expressed by the author do not necessarily reflect those of loveMONEY. This article does not constitute financial advice. You should speak to a professional financial adviser before engaging in any transaction.

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