What are the best ways to invest in gold?

invest in gold

Various options to invest in gold

Historically gold ownership has been associated with super wealthy sheikhs and the elite. However, the financial landscape has shifted to such a degree that it is now crucial for the average man in the street to consider the best ways to invest in gold.

Gold mining shares

While gold investment may be a new concept to many, share ownership is far more commonplace. So a good place to start may be gold mining shares.  Just like other stocks, the price of these companies can go down as well as up and the shareholders will receive dividends if the company does well. A word of caution though is that your risk exposure is to one company only rather than to the gold price. This means that all your eggs are in one basket, so if that particular company has poor management or they struggle to discover new gold reserves, it can struggle or even go bust. The possible rewards to the investor are high, but unfortunately so are the possible risks of total loss. The recent gold price adjustment meant that many miners were operating at a loss until the price recovered, leaving many precariously close to closure.

Gold ETFs and gold funds

Gold funds such as the Blackrock Gold & General provide the advantage of spreading exposure amongst a basket of gold mining companies, reducing overall risk. However, as an investor, the value of the fund still doesn’t directly track the gold price. You have to pay management fees for the running of the fund and you only ever really own a piece of paper, meaning your investment is at risk from poor management and the underlying companies going bust.

A more direct relationship with the gold price would be with PHYS01_Animated_Gif_3_MPUan Exchange Traded Fund (ETF). This tracks gold far more closely and can be suited to those looking to trade in and out of gold and play the market, as charges and margins are low. However, these gold investments have an Achilles heel. Just like with shares and funds, the investor only owns the asset electronically or on paper. There has been much speculation recently that ETFs and ETCs only hold a fraction of actual physical gold compared to the amount of outstanding investment in their funds. This means that if many investors chose to sell at the same time, there wouldn’t be the amount of gold behind the scenes to cope with the sell off and the whole structure would collapse – leaving many penniless. These concerns have manifested recently into a dual market – Electronic gold funds and physical gold – with a majority of investors wishing to move over to owning real gold bars and coins.

Physical Gold

The only way to invest in gold with total peace of mind is to buy gold coins and bars. These can be delivered direct to your door from reputable gold dealers so that you get direct access to your gold. This means that investors are immune to any companies going bust, poor fund managers, or even Governments collapsing!

Margins are higher when buying physical gold as there is a cost associated with refining, producing and distributing gold bullion. Therefore it is far better suited to those seeking medium to long term security rather than active traders.

However, there are now a number of innovative physical gold products which further enhance the case for investing into solid gold. All investment grade gold is VAT exempt in the UK. Certain British coins have the added advantage of also being Capital Gains Tax free. Gold bullion now even qualifies for your pension with SIPP Gold, providing the chance to buy gold bars at up to 50% discount through tax relief. Finally, a very accessible way to invest in gold is through Gold Savings. This offers the chance to set up a monthly savings scheme whereby investors gradually build a holding in gold coins rather than save with a traditional bank.

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Daniel Fisher

Daniel Fisher formed physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.

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