If the seemingly inexorable rise of inflation in the UK and elsewhere in the world is making you wonder where you can invest your money and keep up with rising prices, then gold is worth considering – at least for a portion of your cash.
Traditionally, gold has been used as a hedge against inflation, which is why, as prices are already rising at 2.5 per cent, it is surprising that the price of the precious metal has been flat for much of this year after a sharp rise in the summer of 2020.
Indeed, over the past year, gold has fallen in price by 16 per cent – to below £1,300 per ounce.
All that glitters: Over the past year, gold has fallen in price by 16 per cent – to below £1,300 per ounce
However, this has not put off ‘gold bugs’ who are expecting the price to go up substantially in the near future. In fact, The Royal Mint reports that it attracted more than 25,000 new customers in the last year.
It also saw a 430 per cent increase in millennials investing via its new, online DigiGold product, designed to enable people to buy gold easily and without hassle.
‘Gold is a form of protection and insurance,’ says economic historian John Butler. ‘A conservative investor who is interested not only in growing their wealth but also protecting it should always have a proportion of their investments in gold.’
He adds: ‘Right now, we have a long laundry list of economic concerns including expansionary monetary and fiscal policies. So while you would always want to have some gold in your portfolio, I would say that the current need for that insurance is unusually large.’
‘Gold is a store of value,’ agrees Adrian Ash, head of research at metals trader BullionVault. ‘It has a strong track record of doing well when the stock market does badly. An overall five-year loss in the stock market usually means that gold will do well. The only time this didn’t happen was during the recession of 1992.’
Not all investors are so enthusiastic though. ‘My view on gold is that you should hold a bit of it, but you don’t want to hold too much,’ says Rob Morgan, analyst with wealth manager Charles Stanley.
‘It’s one of those assets that in normal times can end up being a bit of a dead weight. It doesn’t provide an income and its price is primarily based on sentiment. But long term, it does keep up with inflation and that’s why gold bugs like it.’
HOW TO GET HOLD OF GOLD
One of the big advantages of gold is that there are numerous products you can invest in, depending on what you feel comfortable with. The most obvious is simply to buy physical gold, either in the form of gold bars or coins – Sovereigns and Britannias being the most common types.
These are available online and on the high street from gold dealers. A popular place to buy them is from The Royal Mint which sells gold bars, Sovereigns, Britannias and a range of coins called The Queen’s Beasts, including the 2020 White Horse quarter ounce, which costs around £400. Gold bullion coins have the advantage of not attracting VAT if you’re buying as an individual. Also any gains are exempt from capital gains tax, but the cost of purchasing coins and bullion can vary a lot. So make sure the cost of purchase doesn’t negate the tax savings.
Coining it in: The Royal Mint sells a range of gold coins called The Queen’s Beasts
The downside to owning physical gold, though, is the cost of storing and insuring it. Some people store it at their bank – for a monthly fee – while others keep it at home. However, many insurance companies insist on gold bullion and coins being kept in a safe in order for the policy to cover them.
An alternative is to buy gold from a company that will store it for you. So, you own it, but never actually see or touch it. For example, with BullionVault, you can buy as much or as little gold (or silver or platinum) as you like via a debit card.
The storage charges are 0.01 per cent a month with a minimum of $4 for gold. You also have a choice of location for storage: London, New York, Singapore, Toronto or Zurich.
You can hold gold, too, in your self-invested personal pension, using BullionVault or The Royal Mint which also has its DigiGold product. ‘DigiGold allows people to purchase gold in small quantities, allowing you to invest as much or as little as you like,’ says Anthony Bamber, head of wealth at The Royal Mint. ‘The gold remains at The Royal Mint and is stored securely in a vault.’
LET A FUND MANAGER TAKE THE STRAIN
Another way to potentially profit from a rise in the price of gold is to buy investment funds that concentrate on gold and other precious metals.
‘I would highlight BlackRock Gold and General as a good choice,’ says Charles Stanley’s Morgan. ‘It is actively managed and at £1billion is one of the larger gold equity funds available to investors. It also has an experienced investment team behind it.’
The fund’s top investments include Newmont – the world’s largest gold mining company – and Canada-based Barrick Gold. Its annual charges are 1.17 per cent.
WHY DEBT FUELS A GOLD RUSH
London-based wealth manager Price Value Partners has been investing in both gold and silver on behalf of clients since the company was formed seven years ago. Its view is that the world is currently overwhelmed with debt, particularly government debt but also corporate and household debt.
So it expects governments worldwide to use inflation to reduce their debt burden. Says co-founder Tim Price: ‘In light of the quite extraordinary reflationary stimulus occurring everywhere, particularly in the United States, all commodities should benefit from rising prices, especially gold and silver that are regarded as hedges against inflation.’
Price Value currently allocates between 30 and 40 per cent of investors’ portfolios to assets including gold and silver. They also invest in gold and silver mining companies provided they can buy shares at a sensible price.
The company is increasingly buying other commodities such as aluminium, tin, copper and zinc. The gold stocks it invests in are generally small mining companies, usually in Australia or Canada.
A low-cost way to invest in gold is to put money into a fund that tracks the metal’s price.
David Henry, an investment manager at asset manager Quilter Cheviot, likes iShares Physical Gold. The fund has low charges of 0.15 per cent a year.
Other gold funds include Ruffer Gold, iShares Gold Producers, Jupiter Gold and Silver, and Sanlam Global Gold and Resources. Funds that are listed on the London Stock Exchange include BlackRock World Mining.
An alternative approach is to opt for a fund with limited exposure to gold. Global investment trust Personal Assets – run by Troy Asset Management – has 11 per cent of its assets invested in gold while Ruffer, also a fund with a worldwide investment mandate, has just less than seven per cent of its portfolio exposed to gold.
Jasmine Birtles is founder of personal finance and investment site MoneyMagpie.com.
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