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How to Invest in Gold - A Beginners Guide

How to invest in gold  a beginners guide

Familiarity with Gold

If you are new to gold investment it is worth becoming familiar with the many different ways to own gold.  It’s also worth remembering that many of the gold ownership schemes will not allow you to take physical control of the gold, an important consideration when you are looking at a physical object as a store of wealth.  Whilst buying gold bullion has its own unique set of risks, as well as plenty of potential on the upside, it is usually a far more secure option than other gold investment schemes.

Types of Gold Investment

There are a number of types of gold investment that are suitable for beginners who are looking to realise the growth in the gold price, rather than take delivery of the gold for storage in their own possession.

Exchange Traded Funds and Commodities in Gold

Exchange Traded Funds usually track equity or fixed income market indices. In order to achieve their investment objectives, ETF providers can either use physical or synthetic replication.  In the case of gold, the fund will usually buy numbered bars in a vault and sell a percentage of each bar as a unit.

Whilst a well-run company will be a good investment, there is no guarantee that the company is well-run. Exchange traded commodities work in a similar way. They are often quoted based on a small premium over their physical asset ownership.

These funds are typically traded in normal stock and commodity markets, hence the term exchange funded. These gold shares typically trade in relatively liquid markets, so buying and selling is easy, however, there is relatively little security as you will not physically own the gold.

Pooled Investments in Gold

A pooled investment scheme is a similar scheme to an ETF or ETC except that the fund in which your gold is held is not traded on the open market.  You will be allocated a percentage of the gold relative to your investment, but again, you are not going to have access to the physical gold, or even have your assets stored in an identifiable way.

All three forms offer a cheap way of accessing the market, but physical security is limited, just as any company based investment may be.

Direct Ownership of Gold with The Gold Bullion Company

Direct ownership of gold comes with its own security issues, but the problem is now physical rather than economic. If you are buying gold from companies such as The Gold Bullion Company, we dispatch your gold on the day of purchase, in a fully insured manner.  Our gold products will come fully sealed, with a certificate of authenticity for the bars or coins.

Once the gold is delivered, you should take steps to secure the metal, usually in a safe.  You should also ensure that the product is fully insured.

An alternative, but increasingly less common  way of holding gold is to add the bars to a safe deposit box at your local bank.  Whilst, it is always possible to rob a bank, you should find that your products are safely deposited and the value of the vault will be backed by insurance (although you should always check with the bank).

Gold Bullion – Providing Isolation from Banking System Issues

For most people, the direct ownership resulting from buying gold bullion will insulate you from shocks to the banking system.  This is particularly important if you are a high net worth individual as guarantees on accounts is limited to £85,000 per institution within the UK.  In this context, a more diverse portfolio can mitigate against the risk of a collapsed bank.

There is also substantially lower risks of a banking “haircut” in terms of large-scale economic variation (such as happened to bank account holders in Greece in recent years.)

Gold, as with any investment, can vary over time, but its reputation as a physical safe haven from economics has seen its value keep pace with inflationary pressures and often surpass other investments