Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
A complete guide to saving and investing in solid gold
Reading Time: 7 minutesThis is a paid article on behalf of Tally
Gold and the Law of Supply and Demand
Most people are familiar with the law of supply and demand. When demand outweighs supply, the value of that good or service increases. Initiatives like Quantitative Easing enable the government to create more fiat currency (like pounds sterling) [thereby increasing the supply,] which only reduces the value of all pounds – including any money you’ve been squirrelling away.
While governments can create more money, the same cannot be done with gold. Because there is only so much gold on this planet, it is a commodity that many people use as part of an investment portfolio. For many, precious metals are a good way of counterbalancing the risks that come with other investments. Gold, in particular, is often referred to as a ‘safe haven’ when compared with stocks and shares because it tends to perform well when markets are in decline.
According to The World Gold Council, the value of gold has increased by an average of 10-11% per year for the last 20 years, outperforming many other types of investments. Gold is also widely considered to be an inflation-resistant asset. This means that when other commodities are falling in value, gold can offer a level of protection against those losses and, most importantly, against inflation.
Gold in Times of Uncertainty
Investors have long since looked to gold in times of turmoil. The Global Financial Crisis (GFC) in 2007 led to a sharp increase in gold investment in Europe, leaping from 70 tons in 2007 to more than 400 tons over the next four years as investors sought to protect their wealth.
More recently, the threat posed by COVID-19 to the health of the European population and economy, combined with large-scale monetary and fiscal stimuli, has caused a similar demand. In January 2020, gold was trading at approximately £1,151 per troy ounce, but by early August 2020, the price was over £1,570 – a 37% increase in a matter of months.
However, uncertainty isn’t the only factor that drives the price of gold. Traditionally, monetary policy has had a significant impact on gold demand. For example, rising inflation can lead to investors using gold as a hedge. Inflation means that the price of goods goes up over a given period of time, thereby reducing your purchasing power. In simple terms, paying out £1.25 for something that only cost you £1 last year. Because gold is generally expected to maintain or increase in value over time, investors put money into gold as a way of preserving their purchasing power.
Conversely, gold can also perform well when the going is good. Increasing Gross Domestic Product (GDP), particularly in India and China, can boost demand for gold and especially gold jewellery. GDP is the measure of the size of a country’s economy. The higher the GDP, the better that country’s economy is said to be performing. Increased wealth and purchasing power usually lead to an increase in the buying of luxury goods, such as those made from gold. And an increase in demand leads to an increase in the overall value of the commodity.
Another important driver for gold demand is Central Bank purchasing, which can significantly impact the price of gold. The role of a central bank is to look after a country’s money – both the policy and the printing. Central Banks will buy gold to hedge against inflation and diversify their assets. Gold is largely seen as a stable asset and can act as a balance when the economy is under threat.
Gold as part of a Diversification Strategy
One of the biggest financial no-nos is putting all your money in a single investment because if the market dips, the result could be devastating. Diversification aims to reduce risk, and gold is regularly used as part of an investment portfolio diversification strategy.
In other words, spreading investments across a range of assets not to maximise returns but to limit any volatility’s impact. By doing this, investors help protect their money from the risks inherent in many investment vehicles.
Ultimately, individuals should carefully consider their circumstances before making any investment. It’s important to look at the product pricing structures and features and if in doubt, to seek advice from a regulated entity.
Types of Gold Investment
There are three main ways to buy physical gold: bars, coins and jewellery.
Buying bullion is the traditional way of investing in physical gold. Bars are often a more cost-effective way of owning larger amounts of physical gold because the premiums (the price you pay over the spot price to cover things like manufacturing) tend to be lower. It costs less to pour gold into a large bar mould than to mint a beautiful coin, so you benefit from economies of scale.
Gold coins are valuable for two different reasons: metal (weight) value and antique (numismatic) value. Coins are seen as a more flexible investment than bars, as it’s easier to sell a percentage of coins than a whole bar. Coins are also one of the more collectable forms of gold.
Jewellery accounts for two-thirds of the world’s annual gold demand and is often seen as a more desirable way of collecting. Unlike bars and coins, jewellery can be bought and used for decorative purposes rather than always being stored in a safe. Unfortunately, the jewellery market is notorious for its huge mark-ups over the actual metal value of the item itself. Some large pieces can be priced at 250% of the market price for gold, whereas the markup with bars and coins tends to be around 5%.
You may also take a hit when it comes to selling because while there is an international marketplace where the price of gold is at an accepted rate, the valuation of jewellery is a subjective business, and opinions can differ greatly between valuers. Even though the value of gold continues to rise, it’s estimated that jewellery sellers return only 30% of the cost price, with many jewellers reluctant to consider repurchasing pieces. Therefore, the big gap between the buy and sell price for jewellery is so vast that making a decent return is pretty unlikely.
Limitations of Traditional Gold Investments
A major issue when buying gold is storage. Putting it in a safe at home is a good option, but you will need to inform your insurer, which could increase your premium. And, of course, no home set-up will be as secure as a safety deposit box or vault.
If you’re not comfortable storing precious metals at home, some companies that sell precious metals will also offer to store them for you for a fee. For example, The Royal Mint’s Vault will charge 1% per year for storage, so you may want to compare this fee against the cost of buying a safe and/or improving your home’s security system.
You may also want to consider the physical weight of gold when deciding on how and where to store it. Coins and jewellery are easier to transport and store because they will be smaller and lighter, whilst gold bars tend to be larger and heavier. A bar of gold the size of your mobile phone weighs around 1kg (or 2.2 lbs). A standard gold bar which is 4 x 11 x 2 inches in size, weighs over 11kg (or 27.5 lbs).
Tally as a Gold Investment Vehicle
More recently, people have been opting for digital precious metals programmes, particularly those backed 100% by real physical investment bars. Owning an actual piece of precious metal is an attractive prospect because if there is a stock market crash, it can be a great comfort to have something safely stored away that is likely to increase in value.
Tally is a brand new asset-backed currency that lets you keep your money in physical gold whilst also taking care of storage and security.
When you deposit funds into your Tally Account, you are purchasing real, London Bullion Market Association-approved physical gold. Your gold is then denominated in ‘tally’ in your online account, with every 1 tally representing 1 milligram of physical gold you own. You can then save, spend or send your tally instantly worldwide using the app and Tally Debit Mastercard.
The GBP (£) value of your Tally Account is determined by the price of gold, which fluctuates but has historically proven to increase in value over time. By anchoring your money to a physical asset that can’t be digitally created on-demand, Tally protects the long-term value of your hard-earned cash. This makes it the only everyday currency that helps you fight inflation and preserve your purchasing power.
Unlike banks that profit from hidden fees, high interest charges, and risky lending practices, Tally’s fee structure is simple and transparent:
A one-off account activation fee of £19 gives you:
- Everyday Account with individual IBAN
- Tally Debit Mastercard (not a prepaid card)
- Easy access savings
- Uncapped balance protection with security trustee
Account keeping fee of 0.9% p.a. covers:
- Security
- Storage
- Insurance
- Operational costs
In the unlikely event that anything happens to the company that runs the Tally savings and payments platform, 99% of your gold will be promptly converted into your local fiat currency and deposited back into your non-Tally account. No limits. No caps. The 1% pays for the quick and efficient return of 99% of your money.
Learn more at www.tallymoney.com
Selling your gold
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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
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