Why Should You Buy Gold? The Benefits And More Explained
Gold shines in shaky times. When stocks slide, and bonds wobble, gold stays steady, shielding wealth. Smart investors worldwide put some gold in their portfolios.
In this guide, we’ll look at gold as an investment. You’ll see why central banks keep buying bars and how regular investors use gold in their portfolios. By looking at gold’s long history and benefits, you’ll see why it holds strong when paper assets vanish.
Join us in uncovering the unique qualities of gold, and what makes it such a good investment vehicle. In this guide, we will:
There is a lot to discuss so we felt an infographic was ideal, this visual format conveys a lot of information in an easy to consume manner. This infographic can be found on this link.
There are several compelling reasons to invest in gold. Its historical stability, protection against inflation, resilience in times of crisis, and role as a portfolio diversifier make it a prudent investment, especially in uncertain economic climates. For a deeper dive into the reasons, explore these compelling reasons to own gold.
Let’s talk about a few of these benefits in greater detail.
Gold has maintained its purchasing power and value for centuries. Ancient Egyptians and the Chinese used gold as the basis for their monetary systems.
During the Gold Standard period in the late 19th and early 20th centuries, major currencies were pegged to and backed by gold. Even now, when fiat money has replaced the gold standard, gold remains a trusted store of wealth. For instance, an ounce of gold today would buy you a high-quality suit, just as it did 100 years ago.
Gold has also reliably kept pace with inflation over time. According to 2022 The Relevance of Gold as a Strategic Asset report by the World Gold Council, gold prices increased at an average annual rate of 10% from 1971 to 2021, outpacing inflation. This historical stability and value make gold a compelling inflation hedge and crisis commodity for investors.
Gold has demonstrated impressive resilience during major economic crises when other assets often suffer. For example, during the 1970s oil crisis, gold prices rose over 1000% while stocks tumbled. More recently, in the 2008 financial crisis, the S&P 500 fell 38%, but gold posted gains of over 25% as investors fled to its safety.
Gold acts as a hedge and safe haven in times of economic uncertainty. Its prices often move inversely to stocks, bonds, and real estate. This negative correlation with other assets makes gold a portfolio diversifier that can mitigate losses when markets are volatile.
For ordinary investors, allocating a portion of assets to gold can provide insurance against market turmoil and tail risks. As macroeconomic storm clouds gather, gold remains a time-tested way to stabilise portfolios.
With inflation recently reaching its highest level in 40 years, guarding against the diminishing purchasing power of cash is top-of-mind for many investors. Savings lose value over time if inflation outpaces interest rates earned at banks. Even with higher interest rates offered on some savings accounts than a couple of years ago, real returns after inflation are negative.
Gold, on the other hand, has proven itself as an effective inflation hedge over the long run. By providing a hedge against rising prices, gold helps protect the buying power of investors’ money.
In times of high inflation triggered by economic turmoil, gold prices often spike as investors seek safe haven assets. For example, from 1978-1980, inflation soared, reaching nearly 15% in the US. Meanwhile, gold prices skyrocketed from around $200 to over $800 an ounce.
More recently, gold rallied to record nominal highs above $2000 an ounce in 2020, partly driven by economic damage from the pandemic. With central banks globally still grappling with high inflation, elevated gold prices indicate it remains a trusted hedge. Allocating a share of assets to gold can help investors maintain purchasing power over the long term.
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Beyond being a historically stable asset and inflation hedge, gold offers several other key benefits that make it an attractive investment option, especially as part of a diversified portfolio.
Gold represents a tangible asset of limited supply. All the gold ever mined would fit into a cube with sides of just 20 metres. With annual mining output meeting only a fraction of demand, gold’s rarity supports its value.
While gold prices fluctuate, they have appreciated significantly over the long run. For example, in August 1970, gold traded at around £35 per ounce. By August 2011, it had soared to over £1,100. Gold has the potential for meaningful portfolio growth for UK investors with long time horizons.
Investing in physical gold is straightforward compared to other assets. Gold coins and bars are universally recognised and accepted. Buying gold in the UK is as easy as visiting bullion dealers in London or reputable online retailers that deliver to British addresses. Selling also only requires finding a willing buyer, which is not difficult given gold’s high liquidity. This simplicity and universal appeal contribute to gold’s popularity.
Major gold trading hubs accessible to UK investors include the London Bullion Market and Switzerland, home to many of the world’s largest refiners. Banks like HSBC and Barclays in the UK also offer gold accounts for secure buying and selling. British investors can conveniently buy and sell physical gold or access UK vault storage facilities thanks to its global footprint.
Adding gold to an investment portfolio can reduce overall risk and improve returns. Discover more about the benefits of gold in a diverse investment portfolio on our insights page. Because gold often moves independently from stocks and bonds, it can smooth out volatility when held alongside these assets.
Many financial advisors recommend keeping 5% to 10% of your portfolio in physical gold as a diversifier and hedge against market downturns. The World Gold Council reports that 25% of UK pension funds now have exposure to gold, up from just 5% in 2011. This shift indicates growing recognition of gold’s role in balancing portfolios.
Gold provides an excellent portfolio diversification tool for British investors seeking an uncorrelated asset to offset stock market volatility. Blending it alongside equities, bonds, and real estate can optimise overall risk-adjusted returns.
Gold investment enjoys certain tax advantages that can enhance net returns for British investors. In the UK and EU, gold bullion is exempt from VAT. Coins issued with purity of 22 carats or higher, are likewise VAT-free. This reduces an investor’s upfront costs compared to buying taxable assets.
Gold may also receive beneficial Capital Gains Tax treatment.. For UK private investors, coins classified as legal tender such as Britannias and Sovereigns are exempt from CGT. Any profits realised on sales of gold bars are still liable for taxation though. By contrast, most investments including stocks and property are subject to CGT on gains.
Gold’s tax-advantaged status gives it a leg up over some other assets. The VAT exemption lowers the entry cost, while the potential CGT exemption reduces the tax burden on long-term appreciation. These incentives can meaningfully improve net investment performance over the lifetime of a diversified portfolio.
Astute British investors may reap tax rewards by judiciously adding physical gold to their holdings following expert tax guidance. When structured properly, gold offers the twin benefits of portfolio diversification and tax optimisation.
Compared to stocks and other paper assets, physical gold exhibits relatively low price volatility. Its prices tend to rise gradually over time rather than experience sharp ups and downs. For example, from 1971 to 2021, gold’s annualised volatility was 14.7% compared to stock market volatility of 18.5% over the same period. This smoother ride makes losses easier to bear for more risk-averse investors.
Gold also provides predictable liquidity whenever the owner chooses to sell. This contrasts with some other assets like real estate, which may take months to liquidate. Thanks to the depth of the global gold market, an investor can sell 1 ounce or 1,000 ounces of gold anytime at transparent spot prices. In London, trading volumes exceed $48 billion daily. This unmatched liquidity means gold owners can easily access their investments.
For British investors building a resilient portfolio, gold’s low volatility and consistent liquidity help mitigate risk while providing flexibility to liquidate holdings as needed. These attributes can balance more speculative assets and provide stability during times of stock market turbulence.
Investing in physical gold eliminates counterparty risk inherent with some other types of investments. Counterparty risk refers to the chance that the other party involved in an investment will default on their obligations.
For example, buying stock exposes an investor to the risk that the company may go bankrupt. Bonds carry the risk of default by the issuing entity. Bank deposits are subject to the bank’s financial health and stability.
Gold bars or coins, on the other hand, have no counterparty. The value is derived from the intrinsic physical metal. An investor has direct ownership of the asset rather than a claim on someone else’s financial promise. Eliminating this credit risk is especially important during times of economic crisis when counterparties come under financial stress.
While other gold investment vehicles like mining stocks, ETFs, or certificates allow greater liquidity and potential upside, they come with counterparty risks that physical gold avoids. Owning actual gold provides a fail-safe form of money free from any trusteeship by governments, banks, or corporations. For investors prioritising capital preservation, gold’s independence from counterparty risk can provide peace of mind.
Beyond its investment merits, physical gold also holds unique value for inheritance planning and preserving family heritage. Collectable gold coins can become cherished heirlooms passed down to future generations. The timeless lustre and beauty of a gold coin or jewellery piece make it a meaningful legacy gift.
Historic gold coins like British Sovereigns and South African Krugerrands may appreciate significantly in value over decades, making them treasures worth bequeathing. Some ultra-rare coins sell for over £1 million at auction. While bullion has lower collectable premiums, it can still make a fine inheritance.
Gold jewellery crafted into iconic family emblems can carry on tradition and meaning. An ancestor’s engraved pocket watch, brooch, or bracelet serves as a personal memento full of nostalgia. Melting down scrap jewellery to recast it into new heirloom pieces allows a family’s heritage in gold to continue.
For British investors, physical gold represents a gateway to connecting past and future through heirlooms. Passing along precious pieces embodying beauty and rarity awakens powerful human emotions beyond just investment value.
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While holding merits of its own, physical gold can be compared and contrasted with other precious metals investments like silver. To understand the pros and cons of investing in both, read our detailed comparison of gold and silver investment. Two other alternatives are investing into shares of gold mining companies or purchasing Platinum bars or coins.
Investing in shares of gold mining companies provides exposure to gold prices while also carrying the upside potential typical of equities. When gold prices rise, mining companies’ profits and share prices tend to increase.
However, mining stocks add risks beyond just gold price fluctuations. The success of the individual mining company depends on factors like management competence and geopolitical issues related to their operations. This extra layer of risk means mining stocks exhibit higher volatility than physical gold prices.
While mining stocks can generate impressive returns during gold bull markets, they do not provide the stability and safety of the physical metal itself. For British investors focused on capital preservation and portfolio resilience, direct gold ownership may be preferable to more speculative mining shares.
Both gold and platinum are precious metals appealing to investors, but they have differences:
In summary, platinum deserves consideration for diversification, but gold remains the more mature precious metal investment with deeper liquidity and role as a monetary asset. British investors may prudently choose to add some platinum exposure to complement a core gold allocation.
Every investment has its benefits and disadvantages. Our table will help you to understand them:
While gold appeals to investors as an asset, it plays a number of additional roles. Learn more about why buying physical gold is a wise decision for many investors.
Gold has served as the basis for money for centuries and still comprises reserves backing many currencies today. Some economic analysts predict a return to financial systems underpinned by gold as central banks lose control of runaway inflation and debt. Investors increasingly recognise gold as the ultimate currency with no liabilities attached.
Gold prices often move independently from equities. While stocks tend to rise with economic growth, gold offers a counterbalance as a stabilising safety play during recessions. Adding some gold to a portfolio provides balance.
Gold possesses an emotional appeal unmatched by paper assets or digits on a screen. Its radiant and luxurious physical properties imbue it with intangible value against fear and uncertainty. This metaphysical dimension drives demand, especially during turbulent times.
In summary, gold transcends commodities and equities by fulfilling monetary, psychological, and aesthetic roles. British investors aiming for robust crisis protection may consider holding a portion of their wealth in history’s most enduring tangible asset.
In today’s turbulent markets, gold remains a prudently counter-cyclical asset for British investors seeking to diversify their holdings. While past performance does not guarantee future results, gold’s enduring role as a crisis hedge and store of value cannot be denied. Allocating a portion of long-term investments to physical gold, held domestically or in secure global vaults, can provide portfolio ballast to weather coming storms.
Gold’s portfolio diversification benefits, inflation protection, tax advantages, and role as legacy wealth are just some of the reasons to consider adding it as part of a comprehensive investment plan. While mining stocks and ETFs offer other ways to gain exposure, physical coins and bars deliver safety from counterparty risks. As economic uncertainty swirls, the stable golden constant stands ready to shine.
For UK investors seeking prudent portfolio diversification and inflation protection, allocating investment funds to physical gold deserves strong consideration. To learn more about securely acquiring physical gold coins, bars, and jewellery that can grow your portfolio, contact our experts at Physical Gold. We’ve been a premier dealer of certified coins and bullion bars to British investors since 2008. Our professional team offers tailored advice to diversify any portfolio.
With Physical Gold, you can discuss how strategically incorporating physical gold can build lasting wealth and deliver peace of mind. We make it easy to invest in history’s most enduring asset.
Contact us today and take charge of your financial future with an allocation to timeless gold.
New gold investors often have questions like:
The key advantages include portfolio diversification, stability, heightened demand during crises, protection against inflation, and tax benefits in the UK. Gold has a low correlation to stocks and bonds, reducing overall portfolio volatility. It carries no counterparty risk and maintains value over centuries.
Many financial experts recommend allocating 5-20% of investment assets to physical gold. It hedges systemic risks like inflation, currency debasement, and market crashes in ways other assets can’t. Gold’s long history as money and store of value makes it a prudent component of any enduring portfolio.
Physical gold coins and bars are exempt from VAT in the UK. For investors resident in the UK, certain legal tender gold coins are also capital gains tax-free. This favourable tax treatment enhances returns for British investors.
Gold mining stocks can generate leveraged returns during bull markets compared to owning physical gold itself. They also pay dividends associated with equities. However, they are riskier and more volatile than physical gold.
Under the gold standard, currency issues were tied directly to gold reserves, constraining money supply growth. This limited inflation, restrained government spending and spurred global trade. However, the gold standard also constrained policy responses to economic crises.