How to invest in gold

For centuries, investors have been turning to gold as a means of preserving wealth, particularly during times of financial turbulence.

How to invest in gold

Despite the recent significant price correction, gold’s function as a long-term store of value remains intact and investors should see it as an integral part of their portfolios given the ongoing macro-economic uncertainty.

Indeed, many investors are viewing the current situation as an excellent time to add to their holdings whilst prices are subdued.

So how should investors access gold?

The first thing to say is that there are now a wide range of ways to access gold from coins to  exchange traded funds to complex financial products to mining stocks, and how it is accessed will depend upon the investor’s specific requirements.

However private investors should concentrate on physical gold investments as by their very nature they have less counterparty risk as you own the physical asset which means you have security of access for the times when you most need it – during serious financial stress.

Another reason is that gold (bullion of fineness 995 and above) and gold coins, under the EU’s Council Directive 98/90/EC, are exempt from VAT.

On top of that, investors who buy British gold Sovereigns and Britannias are exempt from Capital Gains Tax.

Main types of physical gold

Gold in the form of bullion bars is the most popular method of investment and these can be bought on allocated or non-allocated accounts.

Knowing the identity of your bars is important to establish title so it is best to choose allocated.

The price of your bullion is easy to follow as it trades at a fraction above the spot price (manufacturing premium) if it is bought as a bar (12.5Kg or 1Kg).

Smaller ingots are available in a variety of weights, however these typically have a fairly high initial premium (up to 50% above the spot price) and so it is worth taking care when considering investing in them.

Gold coins’ main difference to bars and ingots is that they have an inherent premium which varies by coin type, condition and demand.

In order to maximise any investment into gold coins it is therefore essential to ensure that the condition is verified and doesn’t deteriorate over time. An essential part of this is how to buy and hold your investment.

How to buy, sell and store gold

Buying and selling gold has never been easier and today this includes shops, shops with an online presence (non-interactive) and fully secured online accounts (completely interactive).

Most gold dealers sell for possession which needs to be done in person or by post. However, when you wish to sell, dealers will buy back your gold if you return it to the shop you bought it from but they usually pay you 98% of the spot price (or less in some cases).

For investors who bought gold coins in particular this ignores the premium that you will have paid on the coin of typically around 5 or 6%.

In addition, a common misconception with gold ownership is that personal possession is the best option. This is not the case as there are additional delivery charges, storage and insurance factors to consider which will impact your return on investment. The resale method and price add to the negative impact on your returns.

Alternatively you can invest in vault-stored gold which keeps your investment safe and allows you to trade it without ever moving because only the title deed needs to change.

Countries have used this type of system to buy and sell to each other since World War II. The other benefit for investors is that a number of these platforms have formed online communities of “buyers and sellers” which improves the resale potential and importantly allows you to set the resale price.

If you are thinking of investing in physical gold there are several options to consider but it is critical to consider the following factors: method of purchase, the quality of product, ease of access, security of your investment, tax implications, method and price of resale.

Gold is defined by fineness or parts of gold per thousand e.g. Bullion marked 995 means there are 995g of pure gold in a kilo whereas four nines Bullion marked 999.9 means there are 999.9g of pure gold in a kilo. Bullion should always bear the following distinctive markings to prove its authenticity – Good Delivery Pure Gold, 999.9, a recognised refiner’s hallmark (Valcambi, Umicore) and a stamped serial number.

Enter your e-mail address to receive updates straight to your inbox

My Newsletter

You can easily unsubscribe at any time by clicking on the unsubscribe links at the bottom of each of our emails

About Author

Paul McGowan

Paul McGowan is Directeur Général of LinGold.com, an online platform for private investors across Europe (France, Switzerland, Italy and the UK) to buy and sell vault stored gold and gold coins.