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Why Buy Physical Gold?

There are many different ways to buy gold in the modern age, not all of which involve actually holding the physical commodity in your hand.

However, for many people, physical gold still holds a great deal of prestige and esteem. Here are just a few of the reasons why you can’t beat physical gold.

The gold standard - why buy gold?

Investors have had unshakeable, steadfast faith in the gold market for centuries. Gold’s value is so trusted that for most of the 19th and early 20th centuries, major world currencies were linked by their governments to the price of gold; a system known as the gold standard. With this system, the law decreed that one Pound, one Dollar, one Mark, or any variant currency employing this system would be worth a specific amount of gold.

The reason this system was employed, is because governments realised that gold’s value was a lot more secure than that of their national currencies. ‘Pegging’ the value of a currency to a certain quantity of gold meant that the currency could only inflate or deflate at the same rate as gold – which wasn’t very much.

Most currencies abandoned the gold standard in the early 20th Century. They decided that the benefits of having a more flexible currency outweighed the risk of drastic inflation. And while economists may argue over these potential benefits all day, inflation has not increased at an alarming rate since the gold standard was abolished.

In fact, as this chart shows, in the mid-70s, the £1 was worth about seven and a half times its value in 2015. Compare that to this chart showing the price of gold going up and up since its 1970 value of £14.55 per troy ounce, and you start to understand what the economists are going on about.

In short, as the purchasing power of the pound in your pocket continues to go down, the value of the gold bullion in your safe vault, or buried in your back garden, goes up and up.

Why buy physical gold bullion?

For many people, the benefits of physical gold remain such that it is still an incredibly popular way of investing in the precious metal. The attraction of buying gold has always been the ability to hold a physical commodity in your hand, and be completely responsible for it – safe in the knowledge that it will remain valuable for many years to come.

As the 2008 financial crisis showed, times of economic volatility mean that the bank you invested money in or the business you hold shares in, cannot always be trusted to pay up on their end of the bargain.

And since the price of gold tends to rise drastically during times of economic volatility, holding physical gold is seen by many investors as one of the most steadfast ways to protect against economic collapse.

Tax free physical gold

One of the other many benefits of buying physical Investment Gold is that it is VAT-free and in certain circumstances Capital Gains Tax free as well. Particularly for those investors looking to gain profits from the fluctuating gold price, this is an important benefit of the commodity. If you had to make 20 per cent profit on every gold sale in order to cancel out a VAT payment and break even, you’d significantly struggle to make any money on a short term basis.

There are varying degrees of tax exemptions depending on the gold product. Investment Gold bullion bars, for instance, are all VAT-free, meaning you don’t have to pay any tax on the purchase of the commodity. They are not, on the other hand, free from Capital Gains Tax, meaning you would still have to pay a certain amount of tax on any profit you make from the gold bar sale.

Gold coins are generally free from VAT as well, with British gold coins from The Royal Mint also mostly exempt from Capital Gains Tax, due to their status as legal British currency.

Should I buy gold coins or buy gold bars?

That depends entirely on your investment plans. Both will likely command a premium over the spot price of gold, but the overall size of this premium can differ depending on the individual product you buy.

Gold bullion bars for instance, will likely be priced closer to the spot price – as they’re more often used for trading purposes than their gold coin variants. Gold coins, as well as many currency coins, are particularly valued among coin collectors and historians for their commemorative value, which cannot be as easily quantified in the same way as their gold content.

This means that gold coins can be more expensive than their equivalent weight in gold bars at any one time. However, it also means that their value is more likely to increase over time if they hold a particular historical significance.

For those investors looking to buy and sell over a shorter time period, with a value of gold that they can easily quantify against the spot price, gold bars are often considered the preferred investment. For investors looking for a long term investment that could see profits above the changes in spot price, commemorative gold coins are worth a look.

Ultimately, buying physical gold is a way of securing your wealth. To get started, have a look through our range of VAT-free gold bars and gold coins.