Investment products overview
Gold ETF
An Exchange Traded Fund (ETF) is a type of investment fund that is traded on stock exchanges, much like stocks. Gold ETFs aim to track the price of gold and allow investors to gain exposure to gold without physically owning it.
While ETFs can be convenient, they come with management fees and you never actually own any physical gold - just a paper claim.
Gold Futures
Gold futures are standardised contracts to buy or sell gold at a predetermined price at a specified time in the future. They are traded on commodity exchanges like NYMEX and TOCOM.
Futures are highly speculative instruments primarily used by traders and hedgers. They require significant capital and expertise to trade effectively.
Gold Mining Stocks
Investing in gold mining companies allows you to gain exposure to gold through shares in companies that extract and produce gold.
However, mining stocks are subject to company-specific risks, management decisions, and operational challenges. You are investing in a business, not the commodity itself.
Gold Bars
Gold bars are available in various sizes from 1 gram to 1 kilogram and beyond. They typically carry a lower premium over the spot price compared to coins.
When buying gold bars, ensure they are produced by an LBMA-accredited manufacturer and come with an authenticity certificate. This guarantees quality and makes resale easier.
Gold Coins
Gold coins such as Sovereigns, Britannias, Maple Leafs and Krugerrands are popular choices for investors. They are easy to store, carry and trade.
Coins offer greater flexibility at resale due to their smaller denominations. British legal tender coins like Sovereigns and Britannias are also exempt from Capital Gains Tax in the UK.
Where to buy gold ?
Buy gold online
Buying gold online is convenient and often offers competitive prices. When choosing an online dealer, research their reputation, check customer reviews, and understand their settlement terms and delivery conditions.
Ensure the dealer is established, has proper accreditations, and offers secure payment methods.
Buy gold over the counter
Buying gold in person from a reputable dealer offers the advantage of direct advice and professional guidance. You can inspect products before purchase and build a relationship with your dealer.
When choosing a dealer, consider word of mouth recommendations, their reputation in the industry, and their years of experience.
What is the best moment to buy gold ?
Gold prices are influenced by various factors including:
- High inflation - Gold is often seen as a hedge against inflation
- Economic or political uncertainty - Investors flock to gold during uncertain times
- Currency movements - Gold is not directly correlated to the US dollar
Rather than trying to time the market perfectly, many investors use a strategy called dollar-cost averaging. This involves buying small amounts of gold regularly over time, which helps smooth out price fluctuations and reduces the risk of buying at a peak.
In summary
Investor Profile
Why do you want to buy gold? Portfolio diversification, inflation hedge, or long-term savings?
Budget
How much are you looking to invest? Start with an amount you are comfortable with.
Premium
Consider bars for lower premiums or coins for greater flexibility and potential tax benefits.
Purchase Method
Will you buy online for convenience or over the counter for personal service?
Tax Implications
Understand the tax rules. UK legal tender coins are CGT-free; bars and foreign coins may not be.
Physical Gold vs Paper Gold
| Physical Gold | Paper Gold |
|---|---|
| Control over your wealth | No real control |
| Full ownership | You never own any gold |
| Personal security and peace of mind | Trust in third party required |
| Secure investment | Speculative investment |
| Unique element to portfolio | Similar to any other share/fund |
| Low risk | Higher risk |
| Crisis insurance | Open to same risks as all investments |
| Timeless asset | Not an asset |
| Keep for generations | Too risky to keep for generations |
| Long term | Short term |
| Potentially profitable | Also potentially profitable |
