How to invest in gold | moneyfacts.co.uk

How to invest in gold

Michelle Monck

Michelle Monck

Consumer Finance Expert

At a glance

• You can choose to buy physical gold such as coins, bars and ingots
• Some banks offer gold accounts where you invest in gold that they own
• You can also invest in gold related companies through the stock market

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Reasons to invest in gold

Investing in gold is an important part of a larger investment portfolio, especially as a form of diversifying your types of investment. Gold has held its value of hundreds of years and because of this, is seen as a tangible asset into which your investment can be stored and preserved for future generations. Investment in gold often increases in value during difficult economic times and when there is a risk of higher inflation. This is because the value of gold is not usually correlated to the performance of other investments such as those connected to the performance of the stock market. For example, in July 2020 gold prices reached record levels as a response to growing economic uncertainties, while the value of the stock market had sharply declined. Gold also saw an increase after the 2008 financial crisis, while the stock market dropped in value.

How to invest in gold for beginners

Those wanting to invest in gold for the first time, often start by buying physical gold. Gold can be purchased in the form of coins, ingots, bars and wafers.

What are bullion coins?

Bullion coins can be easily sourced, and their price is based on the spot value of gold plus a small premium. These are legal tender that are of the required investment-grade.
These are available in a range of weights including in ounces such 1/10oz, 1.4oz, 1/2oz and 1oz. Krugerrands or Britannias are popular 1oz gold bullion coins.

What are gold bars?

Gold bars are available as cast or minted gold bars. Cast gold bars are when molten gold is poured into a mould. It then cools to form a gold brick and is removed from the mould. A minted gold bar is created by using several dies to cut out the bar and embossed lettering from a larger sheet of gold and metal.
Investors can buy gold on an allocated or unallocated basis either with a bank or through a bullion brokerage.

What is the difference between an allocated and unallocated gold account?

The main difference is about the ownership of the gold and who is responsible for the security and insurance of that gold. When you buy gold on an allocated basis this means you have the title for this gold and are the legal owner. This means you are also responsible for its safe storage.
When investing in gold in an unallocated account from a bank or third party they retain legal ownership of the gold, not you. Rather than buying the gold and you owning this asset, you have instead made a deposit of funds to the bank. The bank in return would then repay your investment when requested at the appropriate value at the time. The upside is that the bank is responsible for the security of the gold and the relevant insurance, but there is the risk that if the bank went bust then these gold reserves could be at risk and would not be protected under the Financial Services Compensation Scheme (FSCS).

There are risks to investing in physical gold

While investing in gold is perceived as a place of safety during difficult economic times, there are no guarantees that its value will always increase. Investors need to be aware that investing in physical gold is an unregulated activity. This means there is no UK regulator that monitors those involved in the selling of physical gold as an investment.

How do I invest in gold mining companies?

You can choose to buy shares in those companies involved in the mining and exploration of gold or invest in financial instruments that base their performance on the future value and changes in gold prices. These include products such as options, futures and spread betting. You do not own any gold in these examples.

Sign up for a share dealing account

You can invest in gold mining and exploration companies by setting up a share dealing account through an investment platform such as Interactive Investor. 

Find out more about in our guide to investment platforms.

What are gold exchange-traded funds (ETFs)?

Gold exchange-traded funds (ETFs) or exchange traded commodities (ETCs) are listed on the stock market like a traditional equity but they hold only assets centred around gold.

What is the best way to invest in gold in the UK?

Investors can either use a gold bullion brokerage to buy gold, contact a bank that offers a gold account or speak with a financial adviser or stock broking service for broader gold investments. An adviser or broker can help to review your investment portfolio and find the best gold investment strategy for your circumstances.

Three reasons why you shouldn't invest in gold

Here are three reasons why you might not want to invest in gold:

1. Gold is not risk free

The price and value of gold depends upon supply and demand. This means that if either of these changes then its price can also change too.

2. It doesn’t provide an income

Unlike a cash savings account, gold doesn’t pay interest or unlike a stocks and shares investment it doesn’t pay any dividends. The aim is that gold providers long-term returns on the value of the capital. Although this may not be the case and the value of your gold will depend upon the demand and availability of supply at any single point in time.

3. Gold is expensive to store and doesn’t have many uses

Gold is heavy and cumbersome to store and requires expensive security to stop it from being stolen. Unlike other metals, it doesn’t have many industrial applications, this limits the demand for it when outside of difficult economic times (this is when gold sales usually peak).

Investing in gold FAQs

Is investing in gold free from VAT?

Those investing in gold bullion of investment-grade quality can do so without paying VAT in the UK due to the European Union (EU) Gold Directive 2000. This arrangement may change when the UK leaves the EU and investors should check the status of VAT for gold investments with HMRC.

Do I pay Capital Gains Tax on gold coins?

Gold coins minted in and after 1837 that are legal UK tender at the time they were purchased or sold should be exempt from Capital Gains Tax (CGT). They also need to be in Sterling to qualify, so a Sovereign that is a £1 sterling-based gold coin, would qualify for the exemption, while Kruggerrands would not as these a form of South African currency. Those buying gold coins minted before 1837 should be aware these are not classed as legal tender and are treated as chattels. There is the possibility that these could be exempt from CGT, if the gain does not exceed certain values set out in HRMC guidance.
Investors also need to bear in mind the rules for the selling of sets of coins and again should refer to HRMC guidance.
Gold that is not deemed to be legal tender will have CGT applied at the appropriate rate for profits over a set amount.

Read the Moneyfacts Taxfacts to find out the current rates and limits for CGT.

Can I buy gold from the Bank of England?

No, while the Bank of England holds more than 400,000 bars of gold, it stopped selling gold in the 1930s.

Should I invest in gold or diamonds?

Just like gold investors can choose to invest in diamonds by buying these physically, investing in companies in the diamond industry or investing in funds based on the value of diamonds or assets associated with the diamond industry. However, unlike gold that measures its worth based on its weight using a set spot rate, diamonds are not homogenous and each one has to be individually assessed for their worth. Variations in shape, colour and clarity can impact their value as an investment. Diamonds are also not exempt from VAT unlike qualifying gold investments.

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Disclaimer

This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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