If you’re thinking about investing in gold then now is a really good time. Gold prices are low at the moment, so you can buy cheap and sell high later.
Somewhat ironically, given the current gold price decline, The Royal Mint has recently launched their own online bullion trading service (complete with a vault guarded by the Ministry of Defence).
If you’re wondering what to invest in and are considering gold, here’s a range of options to suit everyone, from the novice investor to the more experienced buyer.
- How to buy gold bullion
- How to invest in gold jewellery
- How to invest in gold Exchange Traded Funds
- How to invest in gold stocks
- How to invest in gold futures
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Is gold a solid investment?
In most cases, gold makes a pretty safe haven for up to 15% of your cash, as it will counterbalance the risk that comes with your other investments – investors call this the ‘diversification’ of an investment portfolio. It’s also worth noting that since gold is always in short supply – mining output peaked in 2003 – it’s easily convertible to cash as buyers are relatively easy to find. Just try to wait until the price has risen before you sell if possible.
However, it pays to remember that gold is valued in dollars on the markets, so even if the value of gold rises, British sellers can lose out should the pound be weak. Yet even when this is the case, gold can still be a decent investment if the market conditions are good.
During times of economic turbulence, such as the recent recession, more and more people invest in gold because it is a ‘safe bet’, which means the price of gold rises during these troubled times.
Skill level: Beginner
Bullion can be bought in several forms including gold bars, sovereigns or jewellery. Bullion is the tangible form of gold that you can buy from gold trading companies and is kept in safe storage on your behalf.
A stock market crash is a bit easier to endure with the knowledge that you have some coins lying snugly in a safe that are likely to gain in value!
You can buy gold bullion to keep at home (after having installed the most advanced security system) or the dealer or bank will keep it in a vault on your behalf, like Bullion Vault. Perhaps the most advanced vault system is The Royal Mint’s ‘The Vault’. This is The Royal Mint’s on-site precious metal storage facility which is protected at all times by the Ministry of Defence – can’t ask for much safer than that!
For a full list of reputable dealers, try the World Gold Council. The London Bullion Market Association also has a members list.
Gold bars and bullion coins can be purchased according to weight and size. Some cast gold bars are tiny and fit in the palm of your hand while others bars are much larger. Bars are measured in denominations of grams, troy ounces, tolas, taels and bahts. The Gold Bars Worldwide website offers a guide to buying and selling gold bars for beginners and has easy-to-use guides on gold in the About Gold section. Small bars and bullion coins can be bought from dealers such as Spink, at about 5% above metal value and sold back at the same rate below value. Dealers make it cheaper for customers who buy or sell in bulk. When buying bars or bullion coins it is important to check that the dealer is reputable and what the insurance costs are.
Metal value refers to the value of a coin only in terms of the pure base metal the coin is composed of. In other words, it would be how much the coin would be worth if you melted it down for the gold it contained. This is calculated by taking into account various factors such as the weight of the coin, metal composition and base metal prices.
British gold sovereigns are especially attractive because they weigh a quarter of an ounce, and were the original pound coin! This also means that they aren’t subject to capital gains tax, because they still count as currency. Remember, though, that old sovereigns are also valuable for reasons other than the actual gold – rarity will make them much more valuable than their gold content, for example. New coins are priced according to their weight, but older coins frequently have a higher collectors’ value. However, unless you’re an expert, it’s a tricky area to venture into as it’s notoriously hard to second-guess this market. Spotting rare coins takes experience and skill, and there’s no shortage of rip-off merchants in this sector.
But if you need cash urgently, it may take a bit of luck finding a buyer for your gold at short notice.
One way to get round this is to buy gold through an online merchant like BullionVault. They’re an internet dealer; although when you buy from them you don’t actually see or handle the gold. You simply invest in it and they store it for you. BullionVault holds its gold in 400-oz bars, at secure vaults in Zurich, London and New York, but you can buy in units of just one gram. So there’s no gold bar with your name on it – just an audited amount of gold in the dealer’s coffer. You’ll get a pretty good price as this way you don’t have to pay the kind of premiums that come with coins and small bars. Underlying this is the promise that should you decide to sell it – they give you your money back (minus, of course, their commission fee).
If you’re investing up to $75,000 in gold through BullionVault, you’re looking at a commission of 0.5%. But this is competitive – when buying coins and small bars for private custody, the costs are approximately 6%, insurance is expensive and finding buyers willing to trust you can be difficult.
Plus, with BullionVault you can buy gold in a variety of amounts from as small as one gram to as large as a kilogram and beyond. Their storage charge is also a cost-effective 0.12% per annum (compared to around 1.25% a bank would charge).
The Royal Mint, on the other hand, offers a buy back scheme for gold you have bought and stored in The Vault. All you have to do is request a quote, they’ll get back to you and you’ll have a certain amount of time to accept or reject. The storage charge for The Vault is 1% per annum.
Can I expect a decent return on my investment?
During the recession, gold’s value climbed more than 118% over five years. Gold is a natural hedge against inflation and currency volatility, and is often used more as a bedrock of wealth preservation rather than an investment that’s expected to turn a massive profit. Gold price slumps aren’t unheard of, but long term it’s a pretty safe bet – especially during turbulent economic times.
How to invest
You can invest in BullionVault by taking a look at their homepage which explains the step-by-step process of buying gold from them and how it works. Once you’ve transferred your money you don’t need to think about anything else apart from checking the price of gold every now and then and deciding when to sell (if at all) and take a profit (you hope).
If you want to buy actual gold and keep it in your home or in a safe, you can find places to buy it by going to the website of the World Gold Council. In some countries you can buy gold over the counter, though it’s probably safer to check the WGC list for approved gold dealers. In the UK, the majority of dealers are in London and some have price lists on their websites and will also offer advice on how to sell your gold.
By owning a gold bar directly, you’ll need to consider insurance and home security. By using a vault or storage dealer (who stores it on your behalf) you won’t ever see the gold and it’ll be safer. Dealers and vaults have gold accounts (a deposit for your gold) which are the most secure option and you still own the gold and the company managing the account (the dealer or vault) cannot trade your gold.
The way to make money from owning a tangible piece of gold is to sell it when the price of gold peaks, which is when there’s economic turbulence as countries reserve gold for financial security. If you face bankruptcy but own bullion – sell it. You’ll at least get approximately what you bought it for.
Should I invest in bullion?
It’s a suitable option for most people who are looking to diversify their investment portfolio, although initial dealing costs for buying basic gold are high – sometimes 5% or even higher every time you buy or sell. It’s best to stick to bullion gold bars – it’s only worth getting involved in the rare coins industry if you have sufficient knowledge of the subject. If you already have a fantastic security system at home then certainly consider buying physical gold. Otherwise it’s probably easier and safer to invest in Bullion Vault or The Royal Mint’s The Vault where they look after the gold for you.
Skill level: Beginner
Almost everyone has gold jewellery lying around their homes – whether it be rings, necklaces, bracelets or even broken earrings. Unlike cars, fashion and electronics, gold jewellery is likely to retain its value over the years and potentially even gain some value. It’s less likely go out of fashion or break down.
How to buy gold jewellery as an investment
A great way to start finding well-priced gold jewellery is to simply ask around. Contact family and friends to see if they have any gold rings, necklaces, etc. that they’re looking to sell or, better still, give to you (well you can ask!). Often people have broken earrings, necklaces or rings in their jewellery boxes that they never wear but don’t like to get rid of because they’re valuable
Keeping in touch with local pawn shops is another way to buy gold. Ask to be contacted by the shop owners when someone sells their jewellery so you can come in and examine the pieces yourself and maybe even make a purchase.
The internet is another place to find gold jewellery. Try placing a free ad on websites like Gumtree.com and keep an eye on internet auctions.
Buying gold jewellery over the internet and through pawn shops does have a drawback – it can be hard to determine the gold’s authenticity. Keep these points in mind:
- Like most things in life, if it seems too good to be true it probably is.
- Always check to make sure the gold you’re about to buy has been hallmarked by an assay office. This will assure the gold is pure. Maybe include a photo for reference.
- Sometimes sellers will place non-hallmarked jewellery around pure pieces to trick buyers.
- In the UK, gold jewellery is stamped with a carat count. There are only four possibilities: 9ct, 14ct, 18ct and 22ct. However, anyone can stamp jewellery so check for the hallmark. A good online seller will provide proof of the hallmark and comply with any requests you make in order to feel comfortable with your purchase.
- If you’re buying in an online auction be sure to check the seller’s feedback rating as well, and make sure its at or near 100%. This means that past customers have been satisfied with their purchases from this individual.
Should I invest in gold jewellery?
Gold jewellery is an investment you can wear and use which gives it double value. Also, if your piece of jewellery is truly unique and beautiful, potential buyers might be willing to pay more for it later on.
However, the price of gold jewellery is often raised by the cost of making the product which makes it more expensive than the pure gold content. Also if you wear your jewellery you might lose it. You will need to insure it (best to put it on your home contents insurance), which is a cost, and possibly even keep it in a bank safe if it is really valuable – yet more cost.
How do I store gold jewellery?
Store gold jewellery in a box with soft lining or separate velvet pouches to avoid scratching. If it’s very valuable, you might want to look into storing it in a bank safe for a fee.
Skill level: Intermediate
A great way to invest in gold is through Exchange Traded Funds (ETFs). With ETFs you’re investing in a commodity as you would with oil or stocks and shares, but, unlike when buying bullion direct, you don’t actually own any gold. ETFs track the price of gold, are traded on the stock market and can be bought through a stockbroker. They’re cheap, easy to buy and sell, and can be held tax free in an ISA or SIPP. ETFs are traded like standard shares and, unlike conventional shares, no stamp duty applies to ETFs.
The Exchange Traded Gold Securities website is updated every minute with the price of gold and details the value of international shares. Investment in gold surges during economic turbulence; investors hoard gold to protect themselves and the price rises. Therefore it’s not a bad idea to invest in the price of gold generally through an ETF.
ETFs track the price of gold. However, unlike tracker funds, they’re actual companies in their own right and are traded like individual stocks. So they can be bought and sold through a trader, just like you would buy shares in BT or Tesco. It’s a quick and effective way of moving money in or out of the market. (If you already have a broking account, there’s no need to set a new arrangement.) You can follow the progress of your fund in the mainstream financial press such as the Financial Times and of course on the internet – just as you might follow any other stock.
ETFs aren’t managed by a fund manager. They are ‘passive’ funds, and so are less expensive. There aren’t any management fees to pay, just a small annual administration charge (typically around 0.4% and 0.5% – much lower than the 1.5% average that a typical unit trust would charge).
An ETF based in gold is regarded as a safe option. (Of course, the price of gold can certainly go down as well as up – but in the long term, gold tends to retain its value and always does well in times of economic uncertainty.) If you’re still relatively new to the investing game, it’s best to steer clear of ‘derivative’, ‘leveraged’ and ‘short’ ETFs. These have the potential to make you huge profits, but with that comes a much higher level of risk – best left to the professionals.
Can I expect a decent return on my investment?
ETFs are a cost-effective way to broaden your investment portfolio, but to get any real benefit you’ll probably have to invest for the long term – we’re talking five years or more.
How to invest in gold ETFs
Your money will go further in exchange traded funds. Like oil, gold is a valuable natural resource and is a safe bet on the stock market. Although you won’t actually own gold, the WGC states that ETF securities are 100% maintained by tangible gold and this backing has been the reason for the increase in gold investment. ETFs track the price of gold exactly. During an economic downturn, a country will hoard gold for economic security and its value increases. Currencies decline but gold retains its value.
In August 2011, gold reached an all-time high of £1,160 per ounce as a result of the crisis in Greece and the political impact of election in the UK. Over four years, the price of gold had more than doubled. Gold is an accepted trade currency world wide and is deemed a substitute currency in financial crisis.
Gold is a strong addition to a share portfolio as its performance does not fluctuate and it cannot be undermined by inflation. The ETF Securities website is a valuable source for an overview of the market and provides a list of stockbrokers.
How do I set up my ETF?
Before you begin investing in gold, you’ll need to set up an account with a broker. It’s best to do it with an online broker as it’s free to register with them and you don’t have to buy anything immediately once you have your account. You can join now and wait for months before you invest in anything. However, once you do trade it’ll be very cheap to buy and sell ETFs and you’ll have constant access to your stock.
If you use TD Direct Investing it’s straightforward to register, although you’ll have a few online forms to fill in. Here’s how you join:
1. Follow this link to begin the process. First you have to show that:
- You’re a private individual aged 18 or over
- You’re a UK resident
- You’re a British national
2. Then you’ll need:
- Your address details for the past three years
- Your debit or switch card details
- Your National Insurance number
3. The page after this information will ask for your country of residence, whether you have an existing TD Direct Investing account number and what kind of account type you want (we suggest you go for a basic trading account to start with). Your password can be delivered by post or email. You’ll also have to say whether you work in the financial services industry and whether or not you need to submit copy contract notes to your employer.
4. The next page asks what type of ISA you’re looking for (if you want to put your ETF into an ISA to protect it from tax), and it explains something about the differences in their accounts. They go on to explain their responsibility to your personal information.
5. Then there are a few pages that you have to fill in with your personal information. They’ll want your debit card details in order to protect against fraud, where you work and how long for, and your home address and tenancy status. After filling in all these pages they will thank you and get back to you within 48 hours confirming whether or not they can trade with you.
6. Once you have an account, you can credit it with a money transfer, invest in your ETF and start to make some investments that will pay dividends!
Once you have your account you’ll need to choose the gold ETF you want to invest in. There are a few to choose from and it’s important to read up on them all. The most popular ones currently are the Lyxor Gold Bullion Securities (LSE:GBS) in London, and the SPDR Gold Trust (NYSE:GLD) in New York so why not start by looking at those?
Should I invest in gold ETFs?
If you want a simple, cheap and hassle-free way of investing in the price of gold then yes. They’re extremely flexible (so if you want to pull your money out at short notice, you can) but their low charges make them a good long-term option.
Skill level: Advanced
Gold stocks aren’t actually gold (obviously!), and are a more of a speculative investment than investing directly in the shiny stuff itself. If you’re looking for more of a safe bet, you’re probably better off going for one of the other investment options. Gold stocks are generally shares in gold mining companies. As the price of gold rises (which you can check if you look at EFTs), share prices in gold mining companies could also increase but there are many other factors that affect the price of shares so don’t simply assume that because gold is high, mining stocks are also high.
When investing in gold stocks, you have to be dedicated to finding a great deal about the gold mining companies before you buy any shares. You could go for a managed fund and let them do all the research for you, but expect high fees for this ‘help’. One such fund, the Black Rock Merrill Lynch Gold Fund, has performed outstandingly well since 1988, but who’s to say that it can continue that performance in the future?
Bear in mind that while the price of gold might rise, gold-mining funds are still governed by the markets when running their business – so there might be a time lag before the price of their stocks start to rise. For example, back in 2008 there was huge turmoil in the banking sector and the price of gold (seen as a safe bet) rose. However, goldstocks still fell – in line with the rest of the market.
Another issue to take into account is the ethics of gold-mining operations. Some gold-mining outfits displace local communities and even use child labour. The large-scale formal mining community is much more regulated, but it can be hard to determine just how ethically sourced the gold you’re investing in is. Gold mining can also be extremely damaging to the environment.
Can I expect a decent return on my investment?
Only if you’re prepared to study this sector in detail and invest in what you consider to be a good company with a good future.
How to invest in gold stocks
To invest in gold stocks is to invest in a gold mining company on the stock market and you’ll need to set up an account with a broker. We suggest you start a nice, cheap account with an online broker like TD Direct Investing (see above how to do it).
Unlike ETFs, the value of investing in gold mining stocks is determined by the potential of a mining company against the anticipated gold price. Another considerable factor is the cost of mining. Your decision to invest in a gold stock should be guided by in-depth research into the company, market and how it fares in the mining industry. Gold stocks can be unstable and carry ethical and environmental concerns that make gold stocks risky to invest in.
We don’t go into detail about individual shares at Moneymagpie but there are many websites that do such as the The Motley Fool and Every Investor. Check those out if you’re interested in finding out more.
Should I invest in gold stocks?
Only if you’re a dedicated investor prepared to study the market and are happy to take a chance with a more volatile investment.
Skill level: Warren Buffett
These are high-risk investments in which experts are attempting to predict how the value of gold will change in the short term. Don’t go there.
Can I expect a decent return on my investment?
Not unless you’re a serious investor.
Should I invest in gold futures?
Probably not. If you’re a very wealthy risk taker who has an in-depth knowledge of the gold market then maybe you could have a punt, but we wouldn’t bother!