How to invest in gold

Investing in gold can be a useful way to diversify your portfolio and offers protection when the stock markets struggle. We explain how to invest in gold

Gold bars
(Image credit: © Getty Images)

There are many ways to invest in gold, from exchange-traded funds (ETFs) to gold stocks, but the simplest way is to just buy physical gold or bullion outright. But what's the best way to invest in physical gold? We look at the options below.

Should you buy coins or bars?

You can buy gold bullion in two main forms: coins or ingots (bars). The advantage of gold coins over gold bars is that they allow you to be more flexible. After all, it's easier to sell 20% of your gold if you own ten gold coins rather than if your whole investment is in one gold bar.

By the same token, given this flexibility, you'll probably find that coins are more liquid (easy to sell) than big bars.

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That said, if you want to buy a lot of gold, then bars might be a more practical proposition.

Investing in gold coins

There are all sorts of gold coins – from the Chinese Panda to the American Eagle. Some coins are more expensive than others because they are rare, beautiful or antiques. These are known as “numismatic” coins, ie, they have value as collectibles over and above their gold value.

But if you are simply looking to track the gold price, then ignore these numismatic coins and focus on those that offer the cheapest premium over the spot price (this is the current price, the one you'll usually see quoted on financial websites).

The one-ounce South African Krugerrand, which was first produced in 1967, is the most common gold coin on the planet and so normally trades at the cheapest premium over the spot price. Other good options are the UK gold sovereign, which weighs 0.2354 troy ounces and is 22-carat gold, and the one-ounce Britannia.

Both of these are still officially legal tender in the UK (the Britannia has a face value of £100, for example), which means that if you sell them at a profit there is no capital gains tax to pay.

Regardless of how you buy your bullion, there is no stamp duty or VAT to pay.

How to buy gold bullion

One key you need to consider is cost. Gold dealers make their money like anyone else – by selling for more than the market price, and buying for less. The difference (or spread) can vary widely depending on the quantity and type of bullion you buy, as well as who you buy it from and the current state of supply and demand.

The worst deals will come from gold vending machines. These serve a market for people keen to turn cash into gold fast, but most investors should go nowhere near them. They are rare in the UK, so you are unlikely to come across one.

Hong Kong is still widely acknowledged as the cheapest place to buy gold coins. Go to Queen's Road in Hong Kong's Central District, and you'll find well-known banks shifting gold coins for as little as 0.2% above the spot price.

But given that a flight to Hong Kong isn't cheap, the best option for most UK investors is to buy from large, established British dealers. They will deliver it straight to your house, through trackable insured couriers. It's better to go with a well-known, large firm with a good record. There are a range of options, but providers include Baird, ATS Bullion, Chards, and GoldCore.

For free and impartial information on where and how to buy gold bullion coins and bars, see our comparison of leading gold brokers here.

When it comes to selling your gold, you'll find yourself at the wrong end of the gold dealers' spreads once again. Depending on the dealer, you could find yourself getting up to 5% less than the market price.

The benefit of owning physical gold

The benefit of owning physical gold is that you have it to hand if you are genuinely concerned about complete financial or societal breakdown. Not so long ago the idea of such a breakdown would seem far fetched. But then we had the global financial crisis. And in more recent times, Brexit, a global pandemic and war in eastern Europe – it seems a little more likely these days than it did not so very long ago.

We've always described gold as insurance, and if you think things could get to the point where all financial assets are essentially worthless, then having access to gold coins would be useful.

The key problem with taking physical delivery is that you have to look after it and you will need to store it securely. A safe is the most obvious option, or outside the home in a bank safe deposit box. But if you do store the gold at home and you want it to be covered by your home insurance, you will need to tell your insurer. Depending on how much gold you have, this could bump up your premium.

Buy gold online and have it stored for you

An alternative way to buy physical bullion and have it stored conveniently for you rather than taking delivery of it, is via a website which allows you to buy gold online. The trouble with that of course – depending on why you're buying your gold – is that you can't get take physical possession of it (or rather, you can, but it will cost you dearly) and you must have utmost trust that whoever is holding your gold is holding it securely. And indeed, that it does actualyl hold the gold it says it does.

One of the best known firms is Britian's BullionVault. It offers the option to buy gold which it stores in itsvaults in Switzerland, London and New York. It conducts a daily independent audit of its holdings, and will also allow you to take physical delivery of your gold if you so wish. A similar service is offered by GoldMoney.

At MoneyWeek, we've been tipping gold since 2001. In that time it went from $250 to a record $2,067 an ounce in 2020 in August 2020.

Successful investing is about the diversification and management of risk. It makes sense to have a part of your wealth invested in gold.

Marc Shoffman

Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.