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A Complete Guide to Investing in Gold

Read our guide to investing in gold, if you are looking to learn the ins and outs of investing. If you need further information on gold bullion investments, contact us. 

The Complete Guide to Investing in Gold

Most financial advisors and consultants recommend having a range of investments. A good spread of investments will help to give you balance and buying gold can be an excellent way to diversify your portfolio.

Why gold is a good investment?

Gold is relatively rare, and the price of gold often doesn’t fluctuate in line with assets such as property and equities. This means that gold bullion can act as insurance for your portfolio, as long as you’re prepared to invest for the long term. Many financial advisors suggest having somewhere between 5% and 15% of your portfolio in gold or gold-related investments.

This kind of solid investment may not appeal to the gambler, who enjoys the thrill of speculating on the stock market and the adrenaline rush that goes with it. However, for those who play by the rules of old and believe one should 'never gamble more than you can afford to lose', you are likely to have a mixed portfolio that protects the bulk of your assets from the vagaries of the markets.

The traditional investment pyramid advises a solid foundation of a tier-1 asset such as gold, with the tip of the pyramid made up of less stable investments. Although no one can predict the future of the gold price, it is a pretty safe bet that your gold investment won't devalue if you invest for the long-term.

Why buy gold?

There are many answers to the question 'why buy gold?' Which ones apply to you will depend on your personal situation and whether you are an experienced investor looking to expand your portfolio or you are just starting out.

But one answer that applies almost across the board is the fact that gold bullion has a superb track record, making it the go-to investment for those seeking secure mid to long-term financial growth. Along with its excellent performance are, of course, the tax benefits associated with gold and the simple matter that - unlike the value of shares in a collapsed company - gold is a solid, physical substance that won't disappear into the ether.

The Gold Bullion team will be exploring these aspects of gold in detail through our guide to buying gold. We'll be looking at the history of gold, the motivations of buyers and, most importantly, the best approaches when it comes to actually making your purchase.

The benefits of a solid, physical investment

Holding physical gold such as a gold bar, or gold coins makes sense because it’s a universal currency and is held by most central banks. It can be a form of “saving for a rainy day” because in times of economic uncertainty and political turbulence when we have witnessed banks failing, having a physical investment such as gold can provide savvy investors with greater peace of mind. Buying gold is also a hassle-free way to ensure your wealth is preserved and passed on to the next generation.

The global governmental attitude to gold is one of trust and it's an approach that filters down to the investment practices of individuals. Indeed, gold prices have shown an incredible growth arc in the last four decades, with price accelerations particularly picking up during times of economic uncertainty, such as the recent global downturn.

Back in 1978, a troy ounce of gold (the unit of weight used for precious metals, equating to 31.1034768 grams) cost £110, but by March 2013, the price had jumped by an incredible 875 per cent to £1,072. It's impossible to predict the future, but gold has historically increased its value when stocks, shares and savings rates have been battered by the economy.

Gold is also considered to be an excellent investment for those who want to protect their wealth against the threats of inflation, depreciation and currency fluctuations. The precious metal has traditionally been used as a primary hedge against inflation, due to its ability to hold its value. An old Victorian adage said that a quality gentleman's suit "would cost roughly one gold sovereign". With the value of a Victorian 22ct gold sovereign standing at around £300 in February 2020, it's a phrase that remains true in the 21st Century.

In basic terms, an investment in gold is generally seen as a less risky place to store your cash. While science, technology and fashions are in a constant state of flux, gold has remained a solid safe haven for centuries. 

Making gold less taxing

It's no secret that investing in gold bullion brings with it some key tax advantages too, but it's a point worth exploring in detail when you start getting serious about building your investment portfolio.

To start with, gold is VAT-free, so there will be no additional VAT to pay when you buy or sell gold. Plus, a number of gold and silver coins are also free from Capital Gains Tax (CGT), which makes them a particularly interesting investment for the mid to long-term.

Royal Mint Gold Britannia, Gold Sovereign and Silver Britannia products enjoy CGT-free status and these products are marked as such on our website. That means your profits will not be taxed if you decide to sell.

The most popular coin is the Britannia, which qualifies as legal tender and is available from  distributors such as The Gold Bullion Company. As well as buying individual coins, investors can buy 25 of these coins housed in the original Royal Mint storage tube.

What is the gold fix price?

The gold fix price is the benchmark price of gold, which is usually used to determine the price of gold products sold worldwide.

The fixed price is set twice a day when the London bullion market is trading at 10.30 am and 3 pm, apart from Christmas Eve and New Year's Eve when only the morning conference is held. The later conference takes into account the opening of the US markets.

The gold fix price was originally introduced in 1919 when the five main gold bullion traders in London met to decide on the price of gold per troy ounce.The fix price was abandoned from 1939 until 1954 because the London gold market was shut during the Second World War and its aftermath. In 1968, the second daily meeting was introduced.

In 2015 ICE Benchmark Administration (IBA) took over delivery of this price setting process for gold and also took over the process for silver in 2017.

The gold fix price is given in US dollars but is converted for local markets into pounds, sterling and euros. The highest gold fix price to date was set at $1917.90 per troy ounce in August 2011.

Conquering economic uncertainty

In times of political and economic upheaval, gold is generally considered an attractive investment option because it tends to perform well or at least hold its own.

In China, interest rates are currently falling, and the value of the Yuan has also dipped, leading to a rise in gold investment among Chinese people looking for a safe haven for their money. This is just one example of a pattern that has played out throughout history because, to date, gold has always shown itself to be a good investment during uncertain times.

The precious metal has traditionally held its own when currencies depreciate and are seen by investors as a hedge against inflation. Back in the UK, during the recent global economic downturn and recession, there was a spike in demand for gold, as investors lost confidence in the financial infrastructure following collapses in the banking sector.

The reassurance of a solid gold bar and coin as a physical piece of wealth means a lot when your money could disappear like a proverbial puff of smoke if the company you invested in goes under and your stocks and shares become worthless overnight.

Is buying gold only for the super-wealthy?

Gold can be an acquired taste for investors – it doesn’t pay interest, so you don’t get any compound growth over time. But on the other hand, gold can offer “negative correlation” with stock markets and other assets, so if stocks are falling then gold tends to rise in value. This can help to offset losses elsewhere in your portfolio.

The supply of gold is finite – there is only so much gold on the planet and once it’s gone it’s gone. In these times of fluctuating currencies and money printing, this can make gold feel like a more secure investment for all, not just for the wealthy or high net worth individuals. People at all levels are investing in gold bullion.

The advantages of small-scale gold investment storage

Safe and secure gold bullion storage is one of the most common issues that our customer care team are asked about. Many people decide to invest in gold because they do not want their wealth to be tied up with third parties such as banks, after being unnerved by the collapses in the financial sector in recent years.

One of the main advantages of investing in gold is that you can store your bars or coins at home, and there are no terms or conditions to meet if you want to access them. However, protecting your investment is key and many buyers initially opt for a safe in their home to have the convenience and security they desire.

How should you keep your gold safe?

If you decide to store your gold yourself, then you will probably want to buy a safe. It is vital to do your homework to ensure you choose the right one to suit your needs, and you should take into account that your needs may change over time as your gold collection grows.

Initially, you will need to identify the best place to locate your safe. Keeping the safe hidden from view and attached to a solid structure is paramount for security reasons. A variety of modern safes are available that are easily disguised: wall safes, floor safes and even ones that can be hidden in bookshelves.

Depending on your plans, it may be an expensive mistake to buy a small safe. Many gold investors have learned to their cost that what they thought would be an adequate storage place quickly became obsolete as their bullion collection grew.

At the Gold Bullion Company, we would recommend new investors buy a safe that has a maximum capacity of at least 45 litres. It will measure around 81cm x 31cm x 18cm and be capable of securely storing 10 kilograms of gold bullion bars. That may sound a lot, but remember, you are starting on an investment journey - one that we hope will prove profitable and there is a strong chance that your gold bullion collection will grow over the years.

Understanding carats and fineness when you buy gold

Most people are familiar with the term carat in relation to the purity of gold. As the system uses fractions of 24 to show how pure a piece is, 24-carat gold is the purest form of the precious metal. It has the 'four nines' standard, which relates to “fineness”.

What does “fineness” mean?

The value of gold bullion increases according to its fineness. When buying gold bullion bars, make sure they carry the 'four nines' stamp of 999,9, which means they contain 99.99 per cent pure fine gold.

The fineness figure shows the weight ratio of gold in the bullion compared to added base metals, which are included to make an item, such as a coin, more durable.

There are two methods used to show the fineness of gold: millesimal fineness measures how much gold is contained per 1,000 parts; so, a piece that was 75 per cent pure gold would have a millesimal fineness of 750. This is a newer method than the traditional carat system, which expresses the purity of gold in fractions of 24.

Traditional carats and buying gold

Items made from 24-carat gold will be a softer metal than less pure pieces, which contain alloys to strengthen them. Higher carat coins carry the most value. The very purest gold ever produced was the 999.999 - known as six nines fine - refined in 1957 by the Perth Mint in Australia.

Currently, the finest gold in production is found in coins made by the Royal Canadian Mint, which are classified as five nines fine, or 999.99.

The 24 carat American Buffalo and Canadian Gold Maple Leaf coins are classified as 'four nines' gold bullion coins. Traditionally, 22-carat gold was used in gold bullion coins and popular 22-carat choices include British Sovereigns, American Gold Eagles and South African Krugerrands.

People will also be familiar with 18-carat gold, which contains 18 parts pure gold, or 75 per cent, and 9-carat gold, which contains nine parts of the pure precious metal or 37.5 per cent.

These purities are usually used in gold jewellery and contain alloys such as silver and copper to make the items more durable.

Other terminology will crop up as you buy gold and please don't hesitate to get in touch with us if we can help advise on any area of your purchase. But these main terms are the essentials to get to grips with before you invest in gold.

Should you invest in gold?

We’ve outlined above the advantages of investing in gold, especially in these times of economic and political uncertainty. There are no guarantees with any investment, but some of the key attributes of gold investment are as follows:

  • Gold is a solid, physical investment which you can store in a convenient location for you, so you can access it whenever you need to
  • Gold is a finite resource, making it a good bet in terms of it holding its value in the long-term
  • Gold has a good track record and many investors recommend making gold part of your portfolio, to balance out any stock market falls
  • Gold is VAT-free, and some gold coins are exempt from Capital Gains Tax
  • You can start small and build up your gold investment over time.

If you’re looking to diversify your portfolio or invest in something less volatile in these times of dramatic currency fluctuations, then gold is a good bet for the long term.

Now you have read through our complete guide to investing in gold you are now ready to start gold investing. A good place to start is by browsing our gold bars or coins or viewing our live gold price chart. If you require further information on gold investments, contact us today to speak to one of our experts.