The Pure Gold Company
The gold price has spiked to near five-year highs as worries about escalating tensions with Russia made some investors nervous.
By James Connington and Laura Suter
The gold price jumped this week in dollar terms to $1,365 after US president Donald Trump tweeted “Get ready Russia” over a potential missile attack on the Assad regime in Syria.
Mr Trump’s comments made investors jittery. The Pure Gold Company, a broker, said it has seen an 83pc jump in gold buying in April, compared to average sales for January, February and March.
In times of market volatility, political instability or other crises, investors seek “uncorrelated” assets – those which tend not to move in line with share prices or other financial markets. Gold is one of these.
Gold and silver online marketplace BullionVault said that 92 kilos of gold, worth £2.8m, was traded on the platform on the day of Mr Trump’s tweet – a 225pc leap on normal volumes.
However, Adrian Ash, of BullionVault, said that much of the trading was investors cashing in on the high gold price, and locking in profits. Most of the buyers were hedge funds and “other speculators”, he said.
The price of gold currently sits at around £944 an ounce, but has ranged from £924 to £1,030 over the past year. Both the Brexit vote and Donald Trump’s election had a pronounced effect on the price of gold in recent years, driving the price higher as worried investors piled in.
Growing demand for gold as a form of investment has resulted in numerous ways to buy and own the precious metal. The following outlines the most convenient and cheapest.
Buying physical gold
There are a number of online bullion dealers that allow you to purchase physical gold, either for delivery or to be held by the dealer on your behalf.
Gold can be bought in a variety of forms, ranging from bars and ingots to coins. Not all gold is created equal – the most commonly used coins and bars will likely be easier to sell when you want to cash in. You can read more on this here.
In the UK, sovereign and Britannia coins, as well as one ounce bars, are among the most commonly bought forms.
If you choose to take delivery, there will be a cost for secure postage, and the burden will be on you to insure it or arrange secure storage if so desired.
If you want the dealer to store the gold for you, there will be a storage fee. This is typically charged as a percentage of the value of the gold.
Dealers make much of their money on the “price spread” – they will sell you gold at more than the spot price, and buy it at less, much like any currencies. It is therefore worth shopping around for the best deal.
Online dealing services
There a number of standalone online dealing services that allow you to invest in gold held elsewhere in a secure vault.
The advantage of these is that you can invest in part of a larger gold bar or ingot, investing exactly how much you want to, rather than attempting to find a smaller coin or bar to fit your investment amount.
Again, there are fees charged for storage and a spread on the price paid. BullionVault is one of the main services and currently owns more than £1bn of gold.
It charges a 0.05pc to 0.5pc dealing fee depending on the amount bought in a year, and 0.12pc for storage and insurance. There is a monthly minimum storage and insurance fee of $4, which means the charge is higher than 0.12pc for smaller amounts.
For a £10,000 investment, there would be a 0.5pc (£50) charge for the initial purchase, a 0.38pc (£38) charge for storage, and a 0.5pc charge again to sell at the end.
Other online dealing services include the Real Asset Company and the Royal Mint’s online dealing service.
“Physically backed” exchange-traded funds are among the simplest ways to invest in gold, and can be held in an Individual Savings Account.
Similarly to the online dealing services, gold is held in a vault somewhere, and the exchange-traded fund (ETF) tracks the movement in the price of gold.
ETFs are listed on the stock market and can be bought and sold via online investment platforms, such as Hargreaves Lansdown and AJ Bell.
One of the most popular is ETF Securities Physical Gold, which charges 0.45pc annually – less than the cost of buying through a bullion dealer.
ETFs that are not backed by physical holdings of gold but rely on financial “derivatives” are seen as riskier.
Invest in gold miners and producers
The final way to gain exposure to gold is to invest in the companies involved in mining, refining and distributing.
The price of these funds is driven by the price of gold, but the movements can be far more dramatic. There are a number of funds that do this. They may also invest in companies that produce other materials.
The £1.2bn BlackRock Gold & General fund is one of the most popular – it charges 1.17pc. Smith & Williamson Global Gold & Resources is another highly regarded choice – it charges 0.72pc.
Taxation on gold investments
Whether or not you have to pay tax on the capital gains made on your gold investment will depend on how you bought it.
All legal British currency is exempt from capital gains tax (CGT). Gold coins such as Britannias and sovereigns are still legal currency, so no tax is due. Gold bars or ingots do not fall into this category, so are subject to CGT.
Gold ETFs or funds investing in gold miners can be held in an Isa, shielding them from tax, but CGT will be due if they are held in a regular dealing account.
Source: The Telegraph