How to invest in gold
Investing in gold dates back to over a thousand years ago, but the yellow metal remains a consideration for any investor’s balanced portfolio. Read on for our guide to the best way to invest in gold and why you should start today.
Gold makes a good investment
Gold is the ultimate ‘safe haven’ investment. It has been valued and traded since at least 700BC, and thousands of years later, it is still attracting investors around the world. Gold is useful, malleable, aesthetically appealing, and rare. But most importantly, it is not correlated in any way to the equity, debt and cash markets. This makes gold the perfect hedging tool for all portfolios, and goes some way towards explaining its recent rise in popularity with investors.
In times of economic turmoil, investors tend to pile into the gold markets in an attempt to protect their money from stock market volatility. It is no coincidence that between late 2008 and 2011 — in the throes of the global financial crisis — the value of gold almost tripled, reaching an all-time high of £1090 an ounce in October 2011.
When is the best time to invest in gold?
Gold historically does best when other sectors are underperforming, and it has been trading at a near—constant high over the past ten years, inspiring a range of new investment opportunities along the way. Gold equities and ETFs allow investors to benefit from the tax—free advantages of a stocks and shares ISA, while recently-introduced regulations mean that pension planners can now include gold bullion within their SIPP portfolio. The popularity of gold—themed stocks and ETFs has also done away with the view that only high net worth individuals and sophisticated investors can afford to invest in gold. Now, it’s just a matter of choosing how you want to invest.
3 of the best ways to invest in gold
Buy gold miner stocks
There are plenty of gold mining firms on the London Stock Exchange, from FTSE 100 diversified mining stalwarts such as BHP Billiton and Rio Tinto and gold specialist Randgold Resources, to smaller players such as the Alternative Investment Market’s (AIM's) Pan African Resources. By investing in mining stocks, you are going straight to the source and should see your stock price rise in line with the changing value of gold.
However, the performance of gold mining stocks is not necessarily linked to the price of gold all the time. Mines are vulnerable to a range of unpredictable events, from geo—political conflict, to natural disasters and employee dissent. In 2017, for example, 11 people were killed in neighbouring gold mine disasters in China, while wage disputes at a South African mine had a knock—on effect on productivity at Pan African Resources. Unless you are prepared to put in the work and research your chosen companies, investing in gold stocks can be a risky venture.
PROs: You can pick and choose your stocks, wrap them within a Stocks and Shares ISA, and cash out at any time.
CONs: Some mining stocks are riskier than others due to their location, status, and safety features.
Invest in gold ETFs
ETFs are a great way to gain access to certain assets without placing all your money in a couple of firms. By investing in gold ETFs, investors can minimise the risk of one—off stock price fluctuations, while also benefitting from the ongoing popularity of the sector.
Gold—based ETFs have had a good year so far, with the vast majority of funds returning more than 5% to investors in the 12 months to December 2017, and one fund – the iShares Gold Hedged (EUR) — returning a massive 19.29% over the same period by investing in physical gold, rather than mines.
There are scores of different gold—themed ETFs to choose from, covering everything from mining equities, to exploration companies, to physical gold, or a combination of all three. Low fees and modest minimum investments make gold ETFs particularly suitable for novice investors and anyone seeking diversification.
PROs: You gain instant diversification across a range of gold mining and trading firms, at an extremely low cost.
CONs: By placing your money in an ETF, you are trusting your gold portfolio to a robo—adviser, and so you naturally relinquish some control over the split of assets.
Buy physical gold (bullion)
It has never been easier to buy solid gold – you can even order gold bars from vending machines as if you were buying a can of Coke. Bullion has traditionally been available through the Royal Mint, but a number of UK—based gold traders have now popped up, offering a variety of gold quantities at competitive prices.
PROs: You have a tangible asset which is yours to hold, store, or pass on to someone else.
CONs: You will need to factor in the cost of secure storage and insurance if you plan to build up a stockpile of gold. These costs will stack up over time, even if the value of your gold decreases.