The best ways to invest in gold

As governments compete to destroy the value of their currencies, there can be only one result for gold. Merryn Somerset Webb explains why, and suggests the best ways to invest in the yellow metal.

Last week, I wrote about the bull market in gold. I don't think it is over. Obviously, not everyone agrees.

A commodity financier friend emailed me to scoff. He said that, for years now, gold bugs have been dreaming of global financial disaster driving the gold price to $3,000. But they have just had "their perfect storm" and it didn't happen. He reckons we should give it up.

I'm not sure he is right. Sure, the financial system has had a pretty good meltdown without gold getting much above $1,000 an ounce for long, but it isn't a banking collapse that really gets gold bugs going, it is a currency collapse. And, in the currency markets, one could argue, the "perfect storm" is just getting going.

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As all governments rush to beat each other to the printing presses to stimulate their languishing economies and the contracting supply of credit, there is, says Sean Corrigan of Diapason Commodities Management, "a deliberate and rapid inflation of the narrow money supply everywhere you look".

That's something that is going to continue with the inevitable result that, sooner or later, we will see a rerun of the stagflationary 1970s. This is not just a bull market in gold but a "bear market for paper currencies."

Clearly, the gold price is going to be volatile. It looks like much of last week's move back up to $1,020 can be partly attributed to Barrick Gold looking to buy large quantities of the metal to close out hedges, for example.

But if you think of gold as a currency rather than as a metal (which, by the way, most central banks do why else would they be buying it now?) the medium-term trend has to be up.

The latter view appears to be the one held by most of my readers: most of the emails I got after last week's column asked not "if" but "how" to buy gold. So how should you?

Purists will want to buy physical gold bars and coins from dealers such as Baird and then keep them either at home or in a safety deposit box.

I have great sympathy with this strategy and am personally pretty tempted by British gold sovereigns (which weigh a quarter of an ounce and were the original UK pound coin).

When I was filming a bit on gold for the BBC early this year, the dealer I was interviewing allowed me to pick up great handfuls of them and run them through my fingers. Very satisfying.

I didn't take any home at the time but, given that most sovereigns are considered to be legal currency and therefore not subject to capital gains tax, when I buy more physical gold, I'll buy sovereigns.

Another option if you want to own physical gold but can't be doing with taking care of it yourself, is to buy it via an online trading company such as Bullion Vault. You buy an actual allocated amount of gold Bullion Vault holds its gold in 400-ounce bars but you can buy in units of just one gramme.

You'll also get a pretty good price as, this way, you don't have to pay the kind of premiums that come with coins and small bars.

Simpler still is to buy via an exchange traded fund (ETF), perhaps the ETF Securities Physical Gold Fund, which tracks the price of gold and can be chucked into your individual savings account (Isa), making it as tax-free as your sovereigns will be. I also hold the ETF Securities Physical PPSGBasket (Palladium, Platinum, Silver and Gold) in my self-invested personal pension (Sipp) silver has monetary characteristics, too.

Finally, there are the gold stocks. This is a much trickier business. Technically, gold-miners should offer far greater returns than gold itself. Their fixed costs are high but their variable costs are low so, once the fixed costs are covered, every rise in the gold price should be pretty much pure profit.

But that didn't happen in 2008. Back then, even as the gold price rose, gold stocks caught up in the global scramble for liquidity fell with the rest of the market. And even now, with gold near all-time highs, the gold-miners are well below their highs.

On the plus side, that means many of them look like they offer pretty good value with gold at $1,000 (a good number make profits with gold at $300-$400) and excellent value for those who think gold will be going higher. (MoneyWeek's commodities writer Dominic Frisby has just written a report detailing his favourite gold mining stocks

Sector Investments has just launched a Junior Mining Fund which is to be 70% invested in the shares of small and medium-sized gold companies and could be of interest.

But those after a more blue-chip gold investment should turn to theBlackrock Gold & General Fund. I've held this in my Isa for more than eight years and, while it has had its ups and downs, it remains one of my best investments ever.

The only word of warning on it? It comes with nasty upfront and annual fees, so make sure you buy it through a fund supermarket and get the charges discounted.

This article was first published in the Financial Times

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.