Pension savers turn to gold investments

Pension savers are adding physical gold bars to their portfolios, with demand for gold up more than 600% over the past month, according to the Pure Gold Company.

The investment service says first-time gold buyers are racing to protect pensions from an equity correction and high inflation.

It has seen a 613% increase in first-time investors purchasing physical gold bars within their self-invested personal pensions (Sipps) over the past four weeks. This covers 1 - 29 September and is compared to the monthly average over the past year. 

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“It’s a big decision to move investments, usually from equities, into gold, but inflation has been a really strong incentive for our customers to try and protect their pensions,” said Josh Saul, CEO of the Pure Gold Company.

“At the current rate of 6.7% inflation, pension buying power could be halved in under a decade. And despite the Bank of England holding interest rates steady last month, consumers are still very much feeling the squeeze. They feel a stock market correction and/or a recession is still a very real possibility.”

Research from the Royal Mint also shows that investors are putting more money into gold and other alternative investments due to high inflation and market volatility. It saw a 10% uplift in gold investments in the first half of 2023.

While the gold price fluctuates every day, over the long term, the precious metal does have a history of providing some protection against inflation.

Saul said: “As a safe-haven asset, it also tends to outperform during very volatile times, and is often used to hedge against stock or property market fluctuations.”

The price of gold

The gold price is currently £1,512 per ounce. A year ago, the price was £1,484, meaning the yellow metal is up 1.9%. This compares to a 7.4% annual increase in the FTSE 100, and a 5.3% drop in UK house prices, as measured by the Nationwide building society.

Over the long term, gold has performed strongly: a decade ago, the price was £817, meaning investors have enjoyed an 85% return. In contrast, the Footsie is up only 13%.

Many of the Pure Gold Company’s new customers work in industries that are directly impacted by the economic environment: around a third of new pension customers work in the financial services sector (including equity traders, bankers and corporate finance), 39% within the property sector, and 22% within healthcare.

According to the company, demand from investors outside of pensions also remains strong. It saw a 319% increase in non-pension gold bar and coin purchases over the past four weeks. Almost a third of these customers are using proceeds from a property sale to fund their gold investment and avoid high mortgage costs.

“We already know mortgage arrears are at a seven-year high. Investors are looking to avoid this by selling their homes and either downsizing or moving to a less expensive area. Any surplus funds are then protected in physical gold as a safe-haven asset,” said Saul. 

He added that gold is ideal for wealth preservation - and can also be tax-efficient. For example, Royal Mint-minted UK gold coins are VAT and capital gains tax free, depending on individual circumstances.

Andrew Dickey, director of precious metals at The Royal Mint, commented: “It is clear precious metals are becoming a more mainstream investment choice for UK investors, having delivered positive returns for investors in recent years.”