Did you know that anyone can invest in gold? It’s not all about keeping gold bars in a super-secure safe, either: there are several ways you can make money from gold.
Investing in gold is seen by some as risky because the price can vary wildly and quickly, depending on world economic factors.
However, investing in precious metal can be a great addition to your overall portfolio. As people see the uncertain economy in a turbulent political environment, gold is a surety. It’s not linked to currencies: there will always be a finite amount and worldwide value for gold.
The confidence in gold is shown in the recent launch of the Royal Mint’s own Exchange Tracker Fund (ETF) alongside its online bullion trading service.
So, how do you invest in gold – and what’s the best way to do it?
- Is gold a solid investment?
- 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
- What about gold futures?
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. Putting any more than 15% of your cash into gold isn’t recommended, as there are other long-term investments which may provide safer returns.
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. Check out BullionVault’s tracker to see how the price can fluctuate by the hour.
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 and political turbulence more people invest in gold because it is a ‘safe bet’. As more people invest, demand grows – which means the price of gold rises.
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.
Understanding gold weights and trading costs
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 other 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 5% 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 the costs of insurance and storage fees.
Metal value refers to the value of a coin only in terms of the pure base metal the coin is made from. 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! 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 – for example, rarity will make them much more valuable. New coins are priced according to their weight but older coins frequently have a higher collectors’ value. However, it’s notoriously hard to second-guess this market so if it’s something of interest to you speak to an expert before you invest. Spotting rare coins takes experience and skill, and there’s no shortage of rip-off merchants in this sector.
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 around this is to buy gold through a reputable online merchant… When you buy from online merchants you don’t actually see or handle the gold. You simply invest in it and they store it for you. One example is BullionVault, which 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 the commission fee. This fee is may be around 0.5% – 3% depending on how much gold you’ve sold – but that’s still better than buying coins and small bars privately at around 6%, which also incur insurance costs.
With merchants like 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 varies depending on how much gold you buy and how long you want to store it. The more you buy, the lower the cost.
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% (plus VAT) 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 or the Royal Mint 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. Using a vault or storage dealer (who stores it on your behalf) means 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. 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 when you’re starting out with gold investments; 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 easier and safer to invest in vault storage traders like The Royal Mint’s 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 retains 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 it’s 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. If you wear your jewellery and lose it, that’s your investment gone! 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.
How do I sell gold jewellery?
Avoid ‘cash for gold’ type brokers as these schemes won’t give you the best returns. They also are ripe with scammers!
You can sell broken gold jewellery for the value of its weight at a reputable jewellery shop, gold merchant, or pawn broker. Make sure you check the price of gold online before you agree to a sale: the person buying it will need to make a profit too, but shouldn’t give you an outrageously low offer against the current market value. If you track the market, and don’t need the cash urgently, you can wait until gold is at a high price to make the biggest profit.
You can also sell your gold jewellery online, but again make sure you do this safely. Check the reputation of your buyers by looking at their feedback ratings before agreeing to a sale. You’ll also need to factor in any commission fees for the website you use.
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. However, unlike buying bullion direct, you don’t 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 a stocks and shares ISA or SIPP. ETFs are traded like standard shares and have no stamp duty – unlike conventional shares.
Typically, as economic climates become turbulent, the price of gold rises as investors turn to the precious metal for security. Investing in a gold ETF means you can benefit from this price rise. It’s easy to see how the price of gold fluctuates: the Exchange Traded Gold Securities website is updated every minute with the price of gold and details the value of international shares.
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.
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 September 2019, gold reached an all-time high of £1,278.06 per ounce as a result of the global economic and political insecurities, such as Brexit.
Gold is a strong addition to a share portfolio as its performance is more reliable than other stock types 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.
There are several online brokers that you can choose, from established companies like Hargreaves Lansdown or newer online-only brokers like eToro.
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) and their low charges make them a good long-term option.
Skill level: Advanced
Gold stocks are different from gold ETFs because the shares are not based on the price of gold but, instead, are in gold-related organisations such as mining companies. If the price of gold rises, the price of a gold stock could go up too – but that’s not guaranteed. There are other factors that affect the price of a gold stock, as with other conventional company shares.
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
Like investing in an ETF or any conventional stocks, you’ll need to set up an account with a broker. We suggest you start a nice, cheap account with an online broker.
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. If you want a stable way to build a long-term income, alternative options for investing in gold (such as bullion or ETFs) may be a more suitable solution for you.
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!