How to invest in gold

Investing in gold can help you diversify and offers protection when markets struggle. But how do you get started if you want to invest in gold?

If you want to protect your investment portfolio from market uncertainty, it’s worth learning how to invest in gold

Gold is seen as something of an investment insurance policy as its value and performance aren’t linked to other assets. As a result, it tends to hold its worth and can become more desirable when markets take a turn or when inflation is high. That makes it an appealing prospect in the current economic environment.

Here, we explain how to invest in gold and add some protection to your investment portfolio.

How to invest in physical gold

One way to add gold to your portfolio is by buying physical gold, or bullion, in the form of bars and coins.

You can buy physical gold from government mints, such as the UK’s Royal Mint, precious metal dealers, such as Goldcore, and jewellers.

To avoid scams, always check whether a dealer is part of the London Bullion Market Association, which sets common standards across the industry.

Gold dealers make their money by selling for more than the spot price and buying for less. Do your research on prices, as the difference – or spread – will vary depending on the gold content and weight of the bullion, who you buy from, and current supply and demand.

Investing in physical gold comes with some tax advantages, as there is no stamp duty or VAT to pay on purchases.

Additionally, there is no capital gains tax to pay on sales of coins produced by the Royal Mint, including Britannias and gold sovereigns, as they are classed as legal tender.

Gold coins can have more value than bars as they may be rarer and are often viewed as collectables, known as semi-numismatic coins.

The one-ounce South African Krugerrand, first produced in 1967, is the most common gold coin and normally trades at the cheapest premium over the spot price.

Other popular coins are the UK gold sovereign, which is 22-carat gold, and the one-ounce Britannia.

However, as attractive as buying a gold bar or coin may be, you will also have to consider delivery and insurance costs, and the cost of safe storage.

One solution may be using an online investment service, such as BullionVault and GoldMoney, which let you invest in gold bars or coins that are then stored in their own vaults.

The Royal Mint also has a digital option that allows you to invest in physical gold, silver or platinum based on monetary value instead of weight. It can then be stored in the Royal Mint’s vault.

If you want to use your gold for spending, apps such as Tally or Glint allow you to invest in gold stored in Switzerland. The gold is then converted into credits that can be used to make purchases using the app or a branded debit card.

How to invest in gold ETFs

Exchange traded funds (ETFs) or exchange traded commodity (ETC) products offer a simpler and cheaper way to invest in gold. Take a look at our article on the best gold ETFs for more

Analysts favour physical-backed ETFs or ETCs, such as iShares Physical Gold, over leverage-style products that rely on derivatives to boost returns, adding extra costs and complexity.

“An ETC owns physical gold and tracks the price,” says Ben Yearsley, investment director at Shore Financial Planning.

“It’s as close as most people get as it’s simple and can be held in your Sipp and Isa.”

The main costs of investing in gold ETFs will be the ongoing charge and any platform fees. 

How to invest in gold mining stocks

It is also worth considering how to invest in gold mining stocks, backing the companies involved in gold exploration or mining.

This requires more research than tracking the gold price, as a company’s success will be linked to its own exploration activities, business strategy and performance.

Rob Morgan, chief investment analyst at Charles Stanley, describes backing mining stocks as a higher-risk route.

“Profits can be highly sensitive to what the gold price is doing, and the riskier firms could even swing from profit to loss or vice versa on these moves,” he says.

How to invest in gold funds

If you don’t want to do the research into gold mining firms yourself, a better option may be investing in gold funds. With a gold investment fund, the investment firm does the research for you when it comes to building a diversified portfolio across different mining companies.

For example, BlackRock Gold & General backs 50 to 80 companies, mainly focused on gold mining and producers.

You could also invest across different metals and mining shares with Jupiter Gold and Silver or the Amati Strategic Metals fund.

“Mining companies have different drivers of return than physical gold but should benefit when the price of gold increases as they should have a fixed or stable cost to mine it but can sell at a higher price,” adds Yearsley.

“One key benefit of gold mining companies is they make a profit and pay dividends.”

The pros and cons of investing in gold

There are plenty of pros and cons to consider, irrespective of how you invest in gold.

Advocates of gold investment see the asset as a useful diversifier when many others are correlated.

“It is often said investing in gold helps fight inflation,” adds Morgan.

“In contrast to paper currencies such as the pound or the dollar, which can lose their spending power over time as more are created, there is a finite supply of gold. Only a small amount is added to the supply each year from mining.”

Samuel Mather-Holgate, an adviser at Mather and Murray Financial, says gold has been an intrinsic store of value for centuries – making it a useful hedge against inflation – and a go-to asset in uncertain times.

“That's certainly what we are in at the moment, so we should be seeing a surge in gold prices,” he says.

“However, because the dollar is so strong, as it's also a popular investment during periods of volatility, gold hasn't seen as much of a bounce as expected yet. The greenback's strength won't continue forever.”

Critics cite the lack of income you can get from physical gold or through ETFs which don’t pay dividends. What’s more, the price of gold can be volatile over the short or medium term, making it hard to know if you are buying at the top or bottom of the market.

“Ultimately, most investors hold gold within a portfolio because it dances to its own beat,” says David Henry, investment manager at Quilter Cheviot.

“The asset has historically moved in different directions to other traditional portfolio investments, seemingly at random. 

“It can help risk-conscious investors diversify their wealth. Just bear in mind that there are no guarantees that gold will rise when stocks or bonds fall.”

Investing in gold ‒ how is gold expected to perform?

If you are looking to invest in gold, it is worth considering how it has performed in the past. While past performance is no guarantee of future returns, it is notable that the gold price has been on the rise over the past few months.

For example, in September 2022, an ounce of gold was down at $1,618, but it has since increased to $2,022, a rise of 24%.

In May 2018, it stood at $1,306, meaning it has risen by 55% over the past five years.

By comparison, the FTSE All Share Index has grown just 2.07% over the past five years.

“Against a weak pound, gold is not far off its all-time highs, so it has done a reasonable job of preserving wealth in what has been a very difficult year,” adds Morgan.

“Longer term, the prospect of inflation becoming embedded and the potential for greater geopolitical instability could be positive factors for the gold price.”

But he warns that gold is still vulnerable to the increasing competitiveness of returns on other financial assets. 

You may be able to add some gold investments to your stocks and shares Isa if you have one.

Recommended

Share tips of the week – 9 June
Investments

Share tips of the week – 9 June

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
9 Jun 2023
Best savings accounts – June 2023
Savings

Best savings accounts – June 2023

Interest rates have been creeping up - we look at the best savings accounts on the market right now.
8 Jun 2023
Cut taxes? No, reform them instead
Tax

Cut taxes? No, reform them instead

The way the state raises money is far too complicated, says Merryn Somerset Webb. Time for a radical revamp.
8 Jun 2023
How much state pension will I get?
State pensions

How much state pension will I get?

The full new state pension is currently £203.85 per week - but what you get will depend on a number of factors. We look at how to work out exactly how…
8 Jun 2023

Most Popular

How much will it cost you to retire early?
Pensions

How much will it cost you to retire early?

The pre-state pension income gap means couples may need an extra £136,000 if they want to retire at 60 – can you afford to retire early?
6 Jun 2023
Best debit and credit cards to use while travelling abroad
Personal finance

Best debit and credit cards to use while travelling abroad

If you’re going on holiday or travel abroad regularly, it’s worth knowing what the best card is to avoid hefty fees. We weigh up the charges and any p…
6 Jun 2023
Best easy access savings accounts – June 2023
Savings

Best easy access savings accounts – June 2023

Rising interest rates have boosted the returns on instant-access savings accounts and we're seeing some of the highest rates seen in years. We look at…
8 Jun 2023