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Gold hits record high! What you need to know about gold investing

Karl 5th Dec 2023 No Comments

Reading Time: 6 minutes

Amid speculation that global interest rate rises may be coming to an end, the price of gold has soared. As of Tuesday 5 December, one ounce of gold will now set you back $2,111 (£1,672) – a record high!

This is all because the price of the US dollar has fallen, which has led to a number of investors falling over themselves to load up on the precious metal.

Yet despite the popularity of gold right now, there a few common misconceptions flying about when it comes to investing in gold. In this article we’ll attempt to bust some common myths surrounding gold investing, while touching on some of the risks of relying on gold.

Keep on reading for all the details or click on a link below to jump straight to a specific section…

4 myths of investing in gold

First discovered more than 5,000 years ago, gold has been an attractive way to store wealth, long before the term ‘asset class’ had been defined!

Yet despite its longevity, gold remains very attractive among investors today, partly thanks to its reputation for being considered a ‘safe haven’ during economic uncertainty.

However, unlike some other assets, it’s fair to say that there are a number of common misconceptions associated with investing in gold. From gold investing being only for the wealthy, to gold being an obsolete asset, let’s explore some of these myths in more detail…

Myth 1: Gold investing is for the wealthy.

While it’s true that the average investor is unlikely to have the financial clout (or strength) to stock up on bars of gold bullion, there are many ways to gain exposure to gold, and you certainly don’t need to have a bulging bank balance.

Buying fractional gold bullion coins, for instance,  is one way that low capital investors can start investing in gold. Similarly, some investment platforms will allow investors to buy a gold exchange-traded commodity (ETC) from as a little as £25. (A Gold ETC will track the price of gold, so you can gain exposure to gold, without the need to buy anything physical).

Meanwhile, TallyMoney – a digital account giving exposure to gold – allows investors to open an account with as little as £1,000.

Myth 2: Gold no longer has a purpose.

Because the UK left the gold standard in 1931, some may argue that gold is now obsolete. After all, the pounds and pence in our pockets are no longer linked to the price of gold. Instead, we trust the Bank of England to tell us what our money is ‘worth’ – as is the case with pretty much all fiat currencies in the world right now.

Yet the move to fiat currency is actually a big reason why gold remains relevant within investing circles today. You see, gold is very difficult to mine, so it’s very close to being considered a finite asset. This is the total opposite to fiat currency, where central banks around the world can print more fiat currency out of thin air.

You may remember that the Bank of England was a huge fan of ‘quantitative easing‘ back in 2020, and this one of the reasons why the UK suffered from soaring inflation in the years that followed.

Yet when it comes to gold, no central bank around the world can 3D print gold bullion – not yet anyway! What this means us that the gold price cannot be easily manipulated, or devalued. This is why many investors, especially those who distrust central banks, may wish to buy gold as a hedge against bad fiscal policies!

Besides its use as a store of wealth, we shouldn’t forget that gold still has practical uses too. Not only is gold used in jewelry, but it’s also commonly used in the medical, tech, and car industries.

Myth 3: Gold is difficult to buy, store, & sell

As highlighted above, there are many ways to invest in gold besides buying physical gold bullion. Buying gold coins, investing in a gold exchange-traded commodity (ETC) which tracks the price of gold, or opening an gold digital money account, are all ways that investors can successfully gain exposure to gold.

As for storage, if you do buy physical gold then it’s true to say that you’ll have to stump up for any storage and insurance costs. However, if you do go down this route then it’s worth knowing that there are specialised companies offering gold storage services, including the Royal Mint’s Vault storage.

When it comes to selling, if you invest in gold through an ETC or a digital money account, then selling your precious metal holdings won’t take you more than a few clicks. If, however, you’ve bullion to sell, then you’ll probably need to contact a specialised dealer.

Myth 4: Buying gold isn’t tax efficient.

It’s true to say that when you invest in assets Capital Gains Tax (CGT) is often payable, which can eat into any profits. This is also true when it comes to gold bullion, as long as any profit you want to crystalise is above your annual CGT allowance.

Yet it’s worth knowing that there are some easy ways to make your gold investment tax-efficient.  For starters, CGT is exempt on all British legal currency – even on currency that is no longer used. This includes gold Britannia coins sold by the Royal Mint.

There’s also the small matter of VAT. If you buy ‘investment grade’ gold in the form of a coin, or bar, then thanks to the VAT Act of 1994, you won’t have to pay VAT on your purchase. This is where gold can really shine over other precious metals, as similar VAT exemptions do not apply to silver or platinum purchases.

Finally, it’s worth knowing that if you want to invest in gold in a tax-free wrapper, then you can do so by buying a Gold ETC in an ISA. As long as your investment stays within this ISA wrapper, then you won’t have to pay tax on any profits you make, not unless the Government meddles with the ISA rules in future!

Do note that tax matters can be complex, so do have a read of the Gov.uk website for more information about tax on savings and investments. Also speak with a financial advisor before making any financial decisions.

The risks of investing in Gold

Now we’ve explained some of the myths surrounding gold, it’s worth keeping in mind that investing in gold is not risk-free.

Here are some risks of investing in gold that all precious metals investors should pay close attention to…

1. The risk of losses.

First things first, all types of investing carriers risk. This means that even if you have a portfolio consisting of gold, and other defensive assets, there’s a chance you could see the value of your investment fall over time.

No investment is risk-free, which is why it’s vital that investors understand their risk tolerance and stick to a defined investing strategy.

2. Gold doesn’t always perform as expected

History tells us that gold has previously demonstrated an inverse relationship with the health of the economy. In other words, when the economy struggles, investors usually stock up on gold as a hedge against uncertainty, which typicality boosts its value . On the flipside, when the economy does well, gold often performs poorly compared to other assets.

Yet, as we know, one of the key ‘need-to-knows’ about investing is that past performance should NEVER be relied upon in order to make future investing decisions. Gold is no exception to this rule, which is why no investor should take it as gospel that gold will continue performing in the way that it has in the past.

3. The gold price can be volatile.

While not a guarantee, we know how the price of gold can be vulnerable to political and economic uncertainty.

So, if you’re not an avid follower of politics, or you’d prefer an asset that isn’t typically tied to performance of the economy, then you may wish to give gold investing a miss.

4. Gold doesn’t pay a return.

When it comes to investing, there can be two ways to make a profit:

  • Capital gains (the value by which your asset rises by),
  • Dividends (a share of company profits paid to shareholders).

If you invest in gold, then you’re relying solely on the former to make a profit, as gold obviously doesn’t pay a return. While this is not necessarily a huge drawback, it is worth bearing in mind.

For example, if you happen to invest in dividend-paying stocks, then there’s a chance you could make a profit in the form of regular dividend payments, even if your investment doesn’t rise in value. In the case of gold, you’ll be worse off if the value of gold falls – full stop.

To learn more about investing in gold, take a look at our guide to saving and investing in solid gold.

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Disclaimer: When investing your capital is at risk. Remember, the value of any investment can both rise and fall. Always do your own research.

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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Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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