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What are the best ways to 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.

High risk gold mining shares

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.


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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.

Gold ETFs

A more direct relationship with the gold price would be with

Insider's Guide to gold and silveran 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 directly 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!

Production cost of gold coins and bars

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.

invest in gold
Investing in physical gold is one of the best ways to acquire a tangible asset

Buying gold coins

Gold coins can be a great addition to the portfolio of any investor as they provide divisibility. But, one should know more about coins, before investing. There are three categories of gold coins. New releases are coins released by mints across the world. These are purchased by collectors and investors alike. They carry low premiums and are easily available. However, one should bear in mind that some premiums may be charged by well-known mints like the Royal Mint for packaging and presentation when these coins are purchased.

Collectable coins

The second category is collectable coins. These coins can be rare and old. Many are limited edition releases and enjoy huge interest from numismatists around the world. Due to their rarity and demand, collectable coins attract large premiums and they are unaffordable for smaller investors.

Bullion coins

Lastly, there are bullion coins. These are affordable, easily available and can be purchased in bulk with large discounts. It’s also important to focus on buying coins of different sizes, weights and dimensions as this adds flexibility and divisibility to the investment portfolio.

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Gold bars are popular as well

Of course, gold bars are also a popular investment vehicle and attractive to several investors. However, one needs to bear in mind that buying a large bar implies that you can only sell it once. This is where divisibility becomes a key consideration, which we have discussed earlier. Owning smaller pieces of gold allows you to sell them off in smaller quantities when the market price is right. One can take advantage of the different price points in the market by continuously selling small quantities. But, gold bars do not support divisibility, as they are good for a single sale at one given price.

Accessible sizes

The good news is that bars are increasingly becoming available in smaller sizes. So, putting some of your investment in these can create balance for your portfolio. Another reason to invest in gold bars is lower production costs. Coins have a more intricate design element to them and higher production costs due to detailing, polishing, designing and other costs of manufacture. Gold bars are usually rectangular and simply have a purity number, serial number and refinery mark.

Always check the purity when buying a gold bar

As discussed, a gold bar will have these critical pieces of information engraved on its face. When making a purchase, it is of paramount importance that one checks these numbers. Most gold bars are produced with a purity of 99.9% and the bar will convey this information as 999.9. Never buy a bar that does not have a serial number or refinery stamp, as there is no guarantee that the gold contained within the bar is pure. Gold bars should ideally be purchased from a specialist gold dealer and one should compile a list of reputed gold dealers in the country before making a purchase.

Our specialist team of gold experts would be happy to hear from you

Physical Gold has a team of gold experts who can assist you in every step of the way when you buy gold. They can help determine the purity and advise you on what to buy and when. The advice they impart is backed by years of experience and solid research. Call our team today on (020) 7060 9992 or get in touch with us online.

 

 

Image credit: Public Domain Pictures


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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