By James Andrews
The pound and the FTSE might have shrugged off Theresa May’s record defeat on Brexit, but Brits reacted by panic buying gold instead.
With no clear idea what will happen with Brexit – and the March deadline for leaving the EU rapidly approaching, Brits are abandoning shares and cash savings and throwing their money into physical gold.
“Last night, we saw a 173% increase in enquires [compared to the average over the last 12 months] as it was announced that Theresa May ’s Brexit deal succumbed to the largest defeat for a sitting Government in history,” said Josh Saul, chief executive of gold investment firm The Pure Gold Company.
“We remained open until 10pm taking orders from panic-stricken investors as many of them expressed concern over the prospect of either a general election and/or the UK leaving the EU without a deal and the effect this will have on our economy.”
They weren’t alone in seeing it either.
Chris Howard, Royal Mint’s director of precious metals, said: “We have seen a significant increase in demand for gold this month and at the end of last year, a trend which we have no doubt is largely attributed to Brexit turmoil and subsequent market volatility throughout the month of December and into January.”
The Mint said gold sales were up 73% on last January, and there was a 74% spike on the day the meaningful vote was delayed.
Why they’re choosing to buy gold
On the face of it, buying gold is a poor use of your money.
Gold prices can’t be reliably predicted, you need to spend money storing it or protecting it, and – unlike shares, property or even normal savings – gold doesn’t pay you an income.
There are costs to actually buying and selling physical gold too.
So why are people throwing cash at the shiny yellow metal? Simple, they’re scared.
“Our clients are not purchasing gold for growth, it’s more about safety and security in the event of market failure,” said Saul.
Fans of gold point out that the supply of the metal is limited, so it’s not something governments can mess about with, as well as the fact it has value globally and has been used as a currency for thousands of years.
“While Brexit is foremost in their minds, our clients are also increasingly worried about a wider economic downturn, presaged by the difficulties on the UK high street with company administrations and store closures, trade wars between China and the USA, and Donald Trump’s volatile behaviour in pursuit of a Mexican border wall,” Saul added.
So if you want to invest some of your money in gold, how do you go about it?
Well, there are three main ways.
1. Buying physical gold bars and gold coins
Gold bars, gold sovereigns, dublooms, pieces of eight or even sequins (originally a type of gold coin) can be bought and stored.
There are two main benefits to this. Firstly, if you’re buying British gold coins (yes, the Royal Mint do still strike gold sovereigns) then, thanks to a quirk of law, you avoid tax on any money you make when you sell them.
Secondly, you actually have the gold – meaning it’s completely within you power and no other firm or company is needed.
Gold bars (ingots) and coins are the most common ways to buy physical gold – with coins a bit more flexible when it comes to selling (you don’t want to have to cut a bar in half if you can help it).
Some coins carry a premium, as they are rare, but most don’t – with the South African Krugerrand the most common coin.
You do pay a more on the price of gold to buy physical versions of it, although the large dealers will deliver it to your house. At the time of writing, a 1 ounce coin costs roughly 3% more than the gold spot price for an ounce.
Big UK dealers include the Royal Mint (who buy and sell non-British coins and gold bars too), Chards and Baird .
When it comes time to sell, you will be hit by a premium again. Using a large dealer – like those mentioned above – is advised, but will likely cost you 4% of the value of the gold.
So were you to buy a single 1oz coin, then sell it back immediately it would cost you 7% of the value if the coin.
2. Online bullion dealers
If you’re not worried about actually having the gold in your hands, online dealers are a far cheaper way to buy gold.
Gold is held in secure vaults, and can be easily bought and sold in whatever quantity you fancy.
The rate you get is also far closer to the current price.
You can also transact fast – with almost instant buying and selling once you’re signed up.
However, there are downsides too.
First major dealers charge storage – including insurance. The cost is typically low – about 0.01% a month or 1% a year – but over the years that builds up. There’s also a minimum charge with some companies that could hurt smaller holdings.
You also don’t escape capital gains tax this way – although you need to make a profit well above £11,000 on what you sell before this kicks in.
3. Gold tracking funds – the cheapest way to invest in gold
If what you care about is the price of gold, and aren’t bothered about directly owning some of the shiny stuff yourself, you can invest in it through trackers.
These are bought and sold in a similar way to shares, can be held in an ISA, and many are even backed with actual gold.
ETFS Physical Gold (PHGP) is the largest gold tracker on the London Stock Exchange, but Source Physical Gold ETC (SGLD) is cheaper – with an annual management fee of 0.29% according to Hargreaves Lansdown.
That means it’s less than a third of the price to hold compared to most online brokers.
However, trading shares – even when they stand for physical gold – incurs a broker fee too.
The good news is that this is only a few pounds, and that’s frequently fixed no matter how big the transaction.
So the question to ask yourself is, do you want access to the price or the metal itself?
But before you do anything, one word of warning.
“Investors need to understand investing in gold is by no means a one-way bet,” said Danny Cox, a chartered financial planner at stock broker Hargreaves Lansdown .
“Gold is notoriously difficult to value, subject to seasonal demand, and unlike shares and bonds, it provides no income for investors. Price movements can be fickle and unpredictable.
“It can, however, be used as a hedge against calamity, but we have seen wider supply and demand considerations put pressure on the gold price up then down in the aftermath of the financial crisis.”