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Experienced Investor

Investing in gold and silver – top considerations

Kit Klarenberg
Written By:
Kit Klarenberg

Gold has been highly coveted for millennia. Nowadays, it is an important part of many investors’ portfolios.

In this guide, Adrian Ash, head of research at peer-to-peer gold and silver exchange BullionVault, suggests five key considerations for potential investors.

Funds vs. physical, wholesale vs. retail

There are three routes to investing in gold today. Through a stock broker, you can buy shares in a gold-backed ETF, trust funds which expose you to moves in the gold price, but without giving you ownership of physical metal.

Small gold bars and coins to take home can carry high dealing costs, around 5 per cent when you buy, plus 2 per cent or more when you sell to the retailer. You’ll also need to deliver small bars or coins back to the shop when you sell, either in person or by post.

Savers looking to invest £1,000 or more can avoid that hassle, and cut those costs dramatically, by buying gold or silver stored in professional bullion vaults. Storage fees vary, running as low as £2.60 per month with insurance included if your metal is acceptable to the wholesale bullion market. Managing that kind of account online also means you can sell instantly for full value.

Who to buy it from

As with any investment, make sure you do your background research and compare costs of providers.

Dealing costs grow more expensive on smaller units. So the best prices come on the large, Good Delivery bars dealt by the wholesale market. Because these bars are only kept in recognised vaults, their quality is accepted as ‘good’ by new buyers, as they trace the bar’s history back to the original refinery. Smaller bars don’t carry this chain of integrity, and should come with a certificate of authenticity from the manufacturer when you buy.

Fakes have been known in 1-kilo and 500-gram bars. Gold coins from official government mints are harder to counterfeit, but beware claims of ‘rarity’ if you don’t know much about the rare coin market.

How and where to store

Because gold is so inert (it doesn’t even rust), physical bullion requires very little specialist care.

But why increase risk to you and your family unnecessarily by holding valuable assets in your home? You may need to alert your home insurance provider, and pay a higher premium. Silver also incurs 20 per cent VAT if you take it into your possession, money you won’t get back on re-selling. You can avoid that cost, and get fully insured storage in specialist bullion vaults, for as little as £2.60 per month for gold online.

How to sell

Before buying, ask ‘how easy will it be to sell?’

Remember, gold doesn’t pay an income, so the only way to realise any potential gain is to sell it. But selling can come with its own difficulties if you’ve got the metal in your hands. You need a liquid market to be able to buy and sell quickly and at low cost. Shares in gold ETF trust funds can be easily sold through a stockbroker. But the deepest, most liquid choice is large wholesale bars – a 24-hour global market bigger than all but the four largest currency pairs traded on the FX market.

How much to buy

Because gold enjoys so many diverse sources of demand – from Asian jewellery manufacturers to micro-chip fabricators and central banks – its price doesn’t behave like other asset classes either.

That makes gold uniquely helpful in spreading portfolio risk, as it tends to rise in value when other, more usually profitable assets (such as equities) aren’t doing so well.

Like all insurance, gold’s value as a diversifier comes at a cost, paid as a slightly lower rate of return on your total portfolio (see table). Prices can be volatile, as this table of annual asset performance for UK investors shows.

But costing 0.5 percentage points per year on a 10 per cent weighting can be a small price to pay for smoothing out the stockmarket’s jumps and crashes, and for reducing the huge impact on fixed-income assets of market interest-rate changes. That’s why, for most savers owning gold today, it’s a long-term investment.