Anyone can invest in gold. It’s one of those commodities that is easy to buy in different ways.
There are several ways you can make money from gold from buying gold bars to gold coins to gold futures and gold shares.
Gold is particularly popular at the moment as the world, and our economy, seem to be full of uncertainty. As people see the uncertain economy and a turbulent political environment, gold is seen as a safe haven. It has a centuries-old tradition of value and there will always be a finite amount which keeps the gold price up.
So, how do you invest in gold – and what’s the best way to do it? Here are our ideas:
- Is gold a solid investment?
- Different ways to invest in gold
- 1. How to buy gold bullion
- 2. How to invest in gold jewellery
- 3. How to invest in gold Exchange Traded Funds
- 4. How to invest in gold stocks
- 5. What about gold futures?
In most cases, gold makes a pretty safe haven for some of your money – not all of it.
We suggest that you put up to 15% of your cash, as it will counterbalance the risk that comes with your other investments.
Investors call this idea of putting a percentage of your money into an alternative investment (as opposed to shares, property, bonds or pensions) as 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 against the dollar. Yet even when this is the case, gold can still be a decent investment if market conditions are good.
During times of economic and political turbulence more people invest in gold because it is seen as a ‘safe bet’. As more people invest, demand grows – which means the price of gold rises.
One of the attractive elements of investing in gold is the fact that you can do it in lots of different ways. It depends on you and how you like to live which method you’re likely to go for.
The main ways to invest in gold are
- Buy gold bullion and gold coins – generally in solid bars
- Buy gold jewellery
- Buy Exchange-Traded Funds (ETFs) that track the gold markets
- Buy shares in companies that mine gold
- Consider gold futures
Skill level: Beginner
Bullion can be bought in several forms including gold bars, and sovereigns.
You can buy gold bullion to keep at home (after having installed an advanced security system) or keep it in a safe at your bank (at a monthly cost). Some dealers will also store it for you (at a monthly cost). 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!
You can buy sovereigns (gold coins) from dealers such as The Royal Mint, Spink or Coininvest. There are several other online dealers and you can buy online with a credit card or Paypal but make sure you check their reviews before you send any money.
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 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.
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 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 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.
- For a full list of reputable dealers, try the World Gold Council.
- The London Bullion Market Association also has a members list.
Well not really!
Basically, if you want to buy physical gold but you don’t want the worry and cost of storing it, your best bet is to use a gold bullion service that will buy the gold for you and store it at the same time.
The main companies that do this are
- the Royal Mint’s DigiGold
With these companies, you own gold, but never actually see or touch it. With BullionVault and Royal Mint, you can buy as much or as little gold (or silver or platinum) as you like using a debit card or just transferring the money from your account. DigiGold allows people to purchase gold in small quantities, allowing you to invest as much or as little as you like,’ says Anthony Bamber, head of wealth at The Royal Mint.
The storage charges at BullionVault are 0.91 per cent a month with a minimum of $4 for gold. You also have a choice of location for storage: London, New York, Singapore, Toronto or Zurich. The Royal Mint stores your gold in their UK vaults.
Put it in your pension
You can hold gold, too, in your self-invested personal pension (SiPP), using BullionVault or The Royal Mint’s DigiGold product. ‘
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.
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,
- base metal prices.
if you have gold coins or bars you can ‘liquidate’ them by selling them to a dealer or on an online exchange.
If you have bought gold online and had that dealer store it for you – as you might with BullionVault, for example – it’s quite easy to trade it as the site itself will just sell it for you. The advantage of this is that you don’t have to pay the kind of premiums that come with actual coins and bars, there is just the commission fee which would be around 05-3% depending on how much gold you’ve sold.
Selling physical coins or bars at a dealer’s place would typically incur costs of around 6%
N.B. Don’t forget tax!
When you sell assets, like gold bullion, you could incur Capital Gains Tax (CGT). That’s a tax you. have to pay when you sell assets and make more than £12,000 in profit. Most people’s gold investments wouldn’t make this kind of profit, but it’s worth being aware that if you have a lot of gold and you bought it cheaply and sold it at a high price (well done!) you could incur a CGT charge.
Can I expect a decent return on my investment?
The gold price has done very well over the last few years, as you can see in this chart of how the price has changed over the last decade, and could continue to grow as the world economy stays volatile.
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. But as governments and economies continue to be volatile and uncertain, the price of gold looks increasingly attractive.
We are expecting inflation to rise in the next couple of years and governments to continue to print money, devaluing their currencies, so those factors are good news for the price of gold.
Gold price slumps aren’t unheard of, but long term it’s a pretty safe bet – especially during turbulent economic times.
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 5-6% 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 at least a bit of gold jewellery lying around their homes – whether it be a wedding ring, 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. Hatton Garden in London is full of gold merchants who will give you a price and you can play the merchants off each other to bargain a better price for yourself.
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 – even on eBay or Etsy – 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 index-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.
- Just a plain old gold tracking ETF would be best for making some sensible money.
Be very careful with the type of gold ETF you buy. Make sure that the ETF actually does have the gold it says it is tracking. Some ETFs lend out their gold which means that if there’s a run on gold (and there could be at any time) you will find that your ETF is part-empty and will lose all its value.
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. Whether you get a good return depends on the price you bought and how much the price of gold goes up over the next few years.
How to invest in gold ETFs
Although you won’t actually own gold, with an ETF, the World Gold Council states that ETF securities are 100% maintained by tangible gold and this backing has been the reason for the increase in gold investment.
- Firstly, 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.
Here are some possibilities for you to consider:
|Company||Mobile Trading||Cost per trade||Frequent Trader||Annual Platform Fee|
|AJ Bell Dealing Account||Yes||£9.95||£4.95||x|
eToro doesn’t charge fees in the usual way, which is why it looks so cheap compared to the rest! It’s a great platform, but there will be fees involved in some trade types. You can read more on their website.
2. Once you have chosen an online broker you will need to register on the website. You’ll need to confirm identity information such as your address, to help prevent fraud. Each website has a slightly different setup process, but you should expect these steps:
- Enter your personal details
- Register your debit card
- Transfer cash (some will simply take payments from your bank account when you buy)
- Buy ETF
which etf should i invest in?
That’s something I can’t tell you.
It’s up to you to do a bit of research and decide which one looks like the best bet to you.
There’s a handy article here from Investopedia with its recommendations for Gold ETFs, which is worth reading for research.
Also a useful guide to gold ETFs for the beginner here.
Once you’ve decided which one to go for, follow the steps above to put your money in!
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-related stocks 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 lot about the gold mining companies before you buy any shares.
- You could go for a managed fund that generally invests in metals mining companies and let them do all the research for you, but expect fees for this help. For example, the Black Rock Gold and General Fund, has done well over the last five years, 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, gold stocks 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. Not only is this bad from an ethical point of view, in time it’s likely that the companies will have to pay out in compensation to various individuals and communities once the court cases start.
gold funds worth considering
Rob Morgan at Charles Stanley says ‘I would highlight BlackRock Gold and General as a good choice. It is actively managed and at £1billion is one of the larger gold equity funds available to investors. It also has an experienced investment team behind it.’
The fund’s top investments include the world’s largest gold mining company, Newmont and Canada-based Barrick Gold. Its annual charges are 1.17%
Other gold funds you could consider include
- Ruffer Gold, iShares Gold Producers,
- Jupiter Gold and Silver
- Sanlam Global Gold Resources.
- Funds that are listed on the London Stock Exchange include BlackRock World Mining.
Also, Global investment trust Personal Assets – run by Troy Asset Management – has 11% of its assets invested in gold while Ruffer has just less than 7% of its portfolio in gold.
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. Buying any individual shares is risky – you might do well or you might lose. It’s a risk.
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, such as one of the ones above. We suggest you start a nice, cheap account with an online broker and follow the steps outlined above in the ETF section.
Should I invest in gold stocks?
Only if you’re a dedicated investor prepared to study the market and you are happy to take a chance with a more volatile investment.
If you like the idea then you should make sure that you spend a decent amount of time studying the whole sector and the geo-political aspects of gold mining. That will help you decide which company or companies to invest in and which to sell.
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. It’s a strategy that can make good money but it can also lose it pretty quickly!
The idea of gold futures is that futures you effectively take out a financial contract with a seller where you agree to buy gold from the seller at a set price on a particular date. It’s a big bet, really, where you bet that the actual value of what you’re going to buy in the future will be higher than the price you have agreed and the seller bets the opposite way! Essentially gold futures are used to bet on the changing of the gold price, known as speculation.
It’s known as a ‘paper gold market’ because you’re dealing in contracts based on the price of gold, rather than actually buying gold. These contracts could be settled in actual gold but often they’re just done with cash.
There is a danger at the moment, too, that there won’t be the gold to back these contracts. in fact, this article explains how a potential lack of physical gold to back the contracts could bring the whole pack of cards falling down.
It says: “On 23 March 2020, three of the world’s biggest gold refineries in Switzerland had to shut down due to coronavirus. As on cue, the next day, the difference in price (also known as spread) between futures and physical gold, shot up.Investors trading on COMEX were uncertain that the physical gold to back their contracts could get to New York. So they demanded a premium. Normally, the premium is less than 50 cents… but fears of a gold shortage pushed it to an unreal $100 extra per ounce!”
Can I expect a decent return on my investment?
Yes but you could also expect to lose a lot. This way of investing in gold is best avoided unless you’re a serious investor. Even for those who invest in futures a lot, as explained above, there are reasons to expect the market in gold futures to collapse at some point in the near future, as this article explains.
Should I invest in gold futures?
Probably not. If you’re a wealthy risk taker who has an in-depth knowledge of the gold market and understands futures, then maybe you could have a punt, but we wouldn’t bother!
However, given the points above – that fears of a potential shortage of gold made futures investors demand a premium – shows that actually owning physical gold could be a better and more lucrative option in the near future.
Also, join my investing webinars to get more knowledge and confidence in investing. They’re cheap (sometimes free) and fun to do, so see what’s on offer in the next couple of months and come along to one or two of them!
*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.