How to Invest in Gold – Forbes Advisor UK

Investing in gold can add stability and diversification to your investment portfolio, especially during times of economic turmoil.

Here’s what you need to know about one of the world’s oldest forms of investment.

how much gold do you have?

According to the World Gold Council (WGC), the total amount of gold mined to date could fit into a 21-meter cube.

Almost all of the world’s gold (about 90%) has been mined since the California gold rush of the 1850s. According to the WGC, half of the gold mined in the past decade has been made into gemstones. A little over a quarter was turned into bars and coins, with the remainder used as tech and gold reserves for investment purposes.

South Wales-based Royal Mint produces all British gold coins, including bullion and coins.

Who owns the gold?

Gold is measured by weight. The United States has the world’s largest gold reserves of over 8,000 tonnes. According to the WGC, this is equivalent to 4% of the 187,200 tonnes of gold mined to date.

After selling 400 tonnes between 1999 and 2002, the price was at a 20-year low, the UK owns 310 tonnes of gold stored in internal vaults at the Bank of England.

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How will it affect the price of gold?

Gold is characterized as a limited commodity with relatively stagnant supply. The three largest gold producers in 2020 were China, Russia and Australia.

As gold’s supply is relatively limited, the price of gold is very sensitive to changes in demand.

Figure 1 shows how the price of gold (per ounce) has changed over the past 30 years. In 1992, the price was less than $200. As of this month (May 2022), it was a little over $1,500, and it has risen more than 8 times during the same period.

Figure 1: Spot Gold Prices from 2002 to 2022 Source: FastMarkets, ICE Benchmark Administration, Thomson Reuters and World Gold Council How is gold priced?

In fact, the price of gold is set in the UK. The world-recognized gold market is called LBMA (London Bullion Market Association). There are two types of gold prices.

EDIT: LBMA members agree on a price to close open customer orders through two daily conference calls. This is usually used for larger orders. Spot: A real-time price primarily used to buy and sell bullion. Why Invest in Gold?

There are several reasons why it may make sense to invest in gold, especially during times of high economic volatility.

1. Asset preservation

Inflation reduces the real value of a currency over time. In other words, 10s today buy less than they did 30 years ago. Gold can provide one way to protect the real value of an asset from inflation.

During periods of high inflation, such as the one the global economy is currently experiencing, investors can turn gold into real physical assets that have value. It is argued that gold is a good hedge against inflation, as theoretically, an increase in gold demand during inflation can push up the price of gold.

Annual inflation in the UK has averaged 3% over the past 20 years, according to the Office for National Statistics. During the same period, gold prices rose by an average of 10% per year (according to the WGC).

Adjusting for inflation of 3%, the real value of gold increases by an average of 7% per year.

2. Safe haven

Currency values ​​are affected by interest rates and national policies on the money supply. In contrast, the value of gold is a function of supply and demand. As a result, gold is often seen as a safe haven in times of economic and geopolitical volatility.

According to the WGC, global gold demand increased by 34% in the first quarter of 2022 due to concerns over the Ukraine war. The first quarter of 2022 was a turbulent quarter marked by a geopolitical crisis, supply chain difficulties and soaring inflation. These global events and market conditions have solidified gold’s status as a safe haven for investors as well as retail consumers.

3. Portfolio diversification

Along with cash, stocks, bonds and property, gold is another form of asset that can provide investors with a diversification factor.

Diversification is important because it provides protection for one asset class, such as underperforming stocks.

Gold is often described as being inversely correlated with other asset classes. This means investing in gold can yield higher returns if stock markets fall due to high inflation and economic uncertainty.

What are the downsides of investing in gold?

There is no risk in holding gold or being exposed to it through a joint investment. Investors may have some disadvantages, including:

Gold is not guaranteed. As with other asset classes, their prices are subject to change and are subject to change. Investors who buy gold may have to wait several years before it can be sold for a profit. Gold, unlike savings accounts, bonds, and dividend-paying stocks, does not provide an income or yield to investors. Physical gold can be difficult to trade for people. The amount you can invest is limited. To purchase physical gold, you must verify its authenticity and secure storage. How can I invest in gold?

There are several ways to invest in gold, depending on whether you invest directly in the precious metals themselves or through indirect means.

1. Buy Gold Directly

The value of gold is calculated in terms of carats. The higher the carat, the higher the proportion of gold and the lower the proportion of other metals. Pure gold is 24 carats.

You can buy physical gold in the form of bullion, coins, or jewelry at precious metal dealers and banks.

Bullion: When people think of investing in gold, they usually think of a bullion locked in a bank vault. Rods can weigh from 1 gram to more than 10 kilograms. The bullion bar is engraved with the purity and weight of gold. Gold Coins: The two most common types of gold coins produced by the Royal Mint are Britannia and Sovereign. The smallest coins on sale today are the 1/10 oz Britannia and 1/4 Sovereign coins, at around 180 and 120 respectively (price as of May 13, 2022). Both coins are fiat money in the UK, so there are no tax considerations for UK residents (eg capital gains tax and VAT). Gold Jewels: Buying Gold Bars takes extra risk. There is usually an increase in gold content to cover the labor and retail margins involved in design and manufacturing. This increase can be up to three times the value of the base value of gold. You should also check the carat of gold as the lower the purity, the lower the base value.

Whatever type of gold you want to buy, it’s important to use a reputable dealer. For example, members of the British Currency Trade Association adhere to the Code of Ethics. Another option is to buy gold bars or coins directly from Royal Mint.

You should also consider insurance and storage costs. Safe storage options include safes and bank safes.

Royal Mint charges 1% per year (excluding VAT) of the value of the gold stored in the safe. If you plan to store your gold at home, it’s a good idea to invest in a high-security safe and have proper insurance.

2. Buying Gold and Commodity Funds

Retail, joint or collective investments combine the money of different people into one large fund that is managed on behalf of a specialized investment firm.

Funds take a passive approach with either actively managed or portfolios designed to mimic specific stock market or commodity indices in which managers select holdings to fulfill specific investment obligations.

Specialty commodities, mining and exchange-traded funds (ETFs) can provide exposure to gold without the difficulties of trading and storing gold in physical form.

Funds that invest in gold mining companies: These include BlackRock Gold and General, Ninety One Global Gold and LF Ruffer Gold, but invest primarily in mining companies rather than gold itself. According to data from Trustnet, the fund offered three-year yields of 62%, 76% and 109% respectively (through May 2022). These funds charge higher fees because they are actively managed by fund managers. ETFs: If you want an investment that tracks the price of gold rather than the value of a mining company, there are many ETFs to choose from. For example, the iShares S&P/TSX Global Gold Index and ProShares Ultra Gold ETF achieved 3-year returns of 88% and 79%, respectively (through May 2022). ETFs tend to have lower fees compared to active funds. 3. Buying shares in a gold mining company

Another way to invest indirectly in gold is to buy shares in companies that mine, refine, and trade gold. However, while the price of a mining company’s stock is correlated with the price of gold, its share price is also affected by other fundamentals such as profitability, geopolitical risks and environmental concerns.

The largest global gold mining companies are:

Barrick Gold Corporation – Headquartered in Toronto, Barrick is a major gold and copper producer with mines in 13 countries. Newmont Corporation – Newmont mines gold in addition to copper, silver, zinc and lead. Headquartered in the United States, with mines in Africa, Australia, North and South America. AngloGold Ashanti – South African company producing gold, silver and copper with mines in 9 countries.

Some of the large mining companies listed on the London Stock Exchange mine gold, among other precious metals. These include BHP Group, Rio Tinto and Glencore.

Investing in mining companies provides opportunities for capital growth when stock prices rise, along with income in the form of dividends. Dividends are paid in cash to shareholders and are usually paid out once or twice a year.

BHP became the world’s largest dividend payer in 2021 with a dividend of $12.5 billion ($10.1 billion), according to a recent dividend report from fund manager Janus Henderson.

As with any asset, any profit or capital gain from investing in gold, directly or indirectly, is potentially subject to capital gains tax (CGT). However, as mentioned above, Britannia and Sovereign coins are fiat currencies, so you cannot pay CGT.

However, everyone gets a 12,300 CGT deduction for the current tax year 2022/23. This is the profit you can get before paying taxes. CGT is not charged on gold-based investments (eg funds) held in personal savings accounts.

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Should you consider investing in other precious metals?

Over the past 30 years, prices of other precious metals, including silver, platinum and palladium, have risen to similar levels.

Metals will play a key role in the transition to green energy to meet the ambitious zero net emissions target set at the last COP 26 summit. Clean energy technologies rely heavily on metals such as lithium, nickel and cobalt to store energy in batteries.

Many car markers such as Tesla, BMW and Ford rely on lithium-ion batteries, and the price of lithium has more than tripled in the past decade. As with gold, there are a variety of metals-related ETFs in addition to regular precious metals ETFs.

Should you invest in gold?

Gold can provide investors a safe haven and a way to preserve wealth in a high inflation environment. Gold prices, like stocks, are volatile, but have risen in value over the past 30 years.

Depending on your preference and risk appetite, you can invest in physical gold, mined stocks, or gold-based funds and ETFs. However, it is important that all investments in gold form part of a diversified portfolio.

Your investment may decrease or increase and you may not get your money back. If you are not sure which option is best for your personal situation, you should seek financial advice.

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