How to invest in gold
Gold can be a good way to diversify your investments and help during difficult markets. We look at how to get started with the precious metal.
Gold is seen by some as the ultimate investment insurance policy.
Its value and performance are uncorrelated to other assets and it tends to hold its worth when inflation rises, making gold particularly attractive in the current environment.
We explore how you can invest in gold and add some shine to your portfolio.
How to buy physical gold
You can’t touch a stock or a bond but you can get your hands on an investment in gold.
Physical gold or bullion can be purchased in the form of bars and coins.
You can purchase physical gold from government mints such as the UK’s Royal Mint, precious metal dealers such as Goldcore, and jewellers.
But before you do, always check if a dealer is part of the London Bullion Market Association, which sets common standards across the industry and can help avoid scams.
Gold dealers make their money by selling for more than the spot price, and buying for less. Do your research as the difference – or spread – varies depending on the gold content and weight, who you buy from, and current supply and demand.
There are tax advantages to owning a gold bar or coins as there is no stamp duty or VAT to pay.
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 beyond just the gold price as they can be more rare and 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 holding a gold bar or coin may be, you have to consider delivery and insurance costs, plus paying for safe storage.
Alternatively, online brands such as BullionVault and GoldMoney will let you purchase bars or coins and store them in their own vaults for you.
The Royal Mint also has a digital option letting investors purchase physical gold, silver or platinum based on monetary value instead of weight which can be stored in the Royal Mint’s vault.
If you want a way of spending your gold, apps such as Tally or Glint let you buy gold stored in Switzerland that is then converted into credits that can be used to make purchases using the app or a branded debit card.
How to buy gold ETFs
A cheaper and lighter route may be to track the price of gold through an exchange traded fund (ETF) or exchange traded commodity product. 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 will be the ongoing charge and any platform fee.
Should you buy gold mining stocks?
Investors can also back companies involved in gold exploration or mining.
This requires more research than tracking the gold price as a company’s success will also 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.
Invest in gold funds
Investment funds that can do much of 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
Supporters of the yellow metal, known as “gold bugs”, 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 as it doesn’t pay dividends, plus the price 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.” 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.”
Going for gold – how is gold expected to perform?
Past performance is never an indicator of future returns but the gold price has been steadily rising in the last few months. A gold rally which began in November 2022, reaching a new high of $2,000 this week - a 15% increase since the end of September 2022.
In contrast, the FTSE All Share Index is down 2.05% on a five-year basis.
“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.
• We have compiled a directory of leading gold brokers where you can buy gold bullion, coins and bars online, over the phone or even in branch: How and where to buy gold coins and bars.