Investing in gold: everything you need to know

The price of gold has soared recently, bringing the precious metal to the attention of potential investors. We reveal everything you need to know.

Investing in gold is not a new concept yet may be an attractive option as the price of gold has soared recently, nearing $1,500 an ounce at the time of writing.

Ross Norman, chief executive officer at British bullion house Sharps Pixley says gold had spent a long time “in the doldrums” due to a strong equities market.

However, mounting global concerns have sparked a rally in the price of gold.

“People are worried about a darkening macroeconomic market,” comments Norman, also citing geopolitical tension.

There’s been plenty for investors to worry about as tensions between the US and Iran have been rising amid a possible escalation in the long-running trade war between the US and China.

“Ideally gold is looking for a weaker dollar, economic uncertainty and geopolitical risk,” says Patrick Connolly, communications head at financial advisors' Chase de Vere.

While gold is typically seen as a safe haven, investors should be wary of a couple of things.

Best and cheapest ways to buy gold

Woman holding gold and silver coins. (Image: Lisa-Marie Janes)

What affects the price of gold?

Firstly, gold does not produce any income, interest or dividends.

The price of gold is dictated by supply and demand, and how much people will pay for it, unlike other forms of investment.

For example, a fund’s performance will be affected by how well a portfolio of companies perform and offers some diversification if one or two businesses struggle.

So, investors should be cautious about depending on gold alone – particularly as it can be a volatile investment.

“Despite its perception as a safe haven and exceptional growth from 2000 to 2011, gold price fluctuations have been volatile over many decades, with investors potentially making or losing large amounts of money over some relatively short timescales,” comments Connolly.

He also warns that the price of gold is far from its peak of over $1,800 an ounce in 2011.

Other factors that can influence the direction of the gold is the outlook for interest rates and price inflation, so you should keep an eye on these.

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Gold bar in Sharps Pixley window. (Image: Lisa-Marie Janes)

What physical gold products can I buy?

It was the desire to learn more about the actual process of buying physical gold that led me to Sharps Pixley, one of the largest sellers of retail gold in Europe, which is registered with the Financial Conduct Authority.

Over 200 products are sold here, including gold bars, coins and gifts, as well as silver, platinum and palladium.

The cheapest gold bar you can get is only a 10th of an ounce, which will set you back around £130, while a 1kg gold bar will cost you a whopping £37,000.

If you’re more interested in gold coins, the cheapest available at Pixley Sharp is a £130 Krugerrand gold coin, which weighs one-tenth of an ounce.

The most expensive coin – which weighs one ounce and is called The Queen Beasts 2017 The Griffin – costs a steep £1,489.

There are also a limited number of gifts on sale, which are primarily roses dipped in precious metals, specifically gold, rose gold and silver that will generally cost you around £150 per rose.

Please note these prices may differ slightly on the site due to the real-time movement in the price of gold.

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Other gifts on offer include a 1kg copper bar and a five-piece silver dice set. Unlike gold coins and bars, there are no additional fees on gifts.

If you’re lucky enough to get a gold-dipped gift and are unsure if you want to keep it, you can sell it if you’re the legal owner.

Woman holding gold rose. (Image: Lisa-Marie Janes)

Norman says gold is an attractive investment as no VAT or Capital Gains Tax is charged for UK taxpayers, who tend to buy sovereigns or Britannia coins, attracting a 4% fee.

Since 2000, gold has averaged 10.1% compounded annual returns, outperforming property according to Norman.

Overseas customers tend to buy gold bars, which are subject to a 1% fee and Capital Gains Tax if they are a non-UK taxpayer.

As smaller gold bars and coins are more expensive to manufacture, the fees are higher.

If someone changes their mind, they can sell back the gold for up to 99% of its value.

The sale value drops to 98% of the gold value if it is damaged.

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Other ways to invest in gold

There are many ways that you can invest in gold, which are:

  • Physically buying gold bars or coins;
  • Investing in a listed gold miner or fund that focuses on returns linked to gold;
  • Buying an exchange traded commodity (ETC).

The latter two options are good if you don’t want to hold physical gold and could save you a small fortune in security precautions.

You can take gold home with you if you choose to buy from a seller like Sharps Pixley.

But if you choose to keep your gold in a security deposit box, it will cost you at least £250 a year – and is likely to be more expensive if you opt to store gold in a vault.

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Gold coins. (Image: Lisa-Marie Janes)

ETCs – essentially a commodity version of an exchange traded fund (ETF) – offers a low-cost way to invest in commodities by tracking the performance of a commodity or an index of commodities.

“Each unit in an ETC is backed by real gold, held in a secure location,” says Martin Bamford, managing director at Informed Choice.

Some ETCs gain exposure via derivatives, but Bamford warns ETCs are rarely regulated, so investors should be cautious.

Invesco Physical Gold ETC aims to replicate the performance of The London Gold Market fixing price and delivered 8% annualised returns over a five-year period.

You can also invest in gold indirectly by buying shares in mining companies like Acacia Mining or in a fund such as Investec Global Gold.

These are not investment recommendations so be sure to do your own research as the performance of any gold-related investment can be volatile.

For example, Investec Global Gold has delivered a 25% annual return in the year to date, but only a -0.62% annual return in 2018.

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Is there a recommended minimum to invest in gold?

If you choose to invest in gold, the decision on how much to invest in is yours.

Bamford recommends gold exposure should be limited to no more than 5% of your overall portfolio, citing volatility and lack of actual investment value as reasons for limited exposure.

Norman believes gold should make up a bigger part of your portfolio at around 10% to 20% over at least five years.

He also argues costs get better for those who invest £1,000 in gold and says gifts are not an investment.

Interestingly, Chase de Vere does not invest in gold on behalf of its clients as many investors may have exposure to gold and other mining shares via a diversified portfolio of investment funds.

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Are serial numbers important?

When you invest in gold, you should make sure you hold it somewhere safe, where it can be secure but also protected against any damage.

Serial numbers may also be worth keeping an eye on.

While Norman says good credentials are essential when buying gold and not to pay much attention to serial numbers as not all gold bars have them, Bamford disagrees.

“Serial numbers on gold bars are a unique identifier, stamped by the refinery who produce each bar,” comments Bamford.

“It’s essential to keep a record of the serial numbers of all gold bars you own, especially those held on your behalf elsewhere.

“Smaller size bars don’t carry a serial number, so should be kept in a sealed container with its own serial number as a reference they belong to you.”

Bamford also advises investors to be ethical when investing in gold as around 100 million people globally are affected by the gold mining industry.

“Fair Trade gold ensures under 18s don’t work in underground mines and no children under 15 work in the mining sector, with all workers receiving a fair wage and working fair hours,” says Bamford.

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