King Midas. Pot of gold. El Dorado.
What do these three have in common?
That virtually indestructible, relatively rare, and highly desirable “noble”metal: gold.
From the ancient Egyptians, Incas, and Greeks to the more modern references such as Willy Wonka’s Golden Ticket or James Bond’s nemesis Auric Goldfinger, gold has played a significant role in human history.
May it be fact or fiction, real or unreal, gold has remained to be one of the world’s greatest discoveries, so much so that people have coveted it, gone to great lengths to acquire it, and thoughts of it continue to fill the minds of many. Perhaps this is because people know that aside from its aesthetic beauty and blinding charm, gold has other stellar benefits such as:
- Low Volatility: Gold decreases the overall volatility of a portfolio. With its finite supply and rarity, it remains to be one of the most sought-after commodities.
- Ownership and Trading is Simple: It’s easy to buy, easy to sell, and easy to pass on from generation to generation. Fire or water can’t destroy it whereas cash or property can easily go up in flames.
- No Counterparty Risks: Physical gold has an advantage over paper-based investments as the latter can be exposed to third parties. With gold, prices will remain intact in case of a banking collapse, will remain at spot price in the event of currency devaluations, and has been sought as a safe investment during financial fiascos.
- Tax Benefits: Physical gold also brings about certain tax relief of up to 45% on qualified gold bars bought as part of a pension. It can be given away to loved ones as inheritance gifts. No value-added tax (VAT) is paid on investment gold while no capital gains tax (CGT) is applied on profits of UK sovereign and Britannia coins.
With these benefits in mind, people have been investing in physical gold over the years. If you find yourself considering shelling out your well-earned money on gold investments, here are some answers to the most pressing questions about this golden opportunity:
- Is gold a good investment?
With the benefits listed above, gold can be considered as an excellent medium to long-term investment. Because of its historical track record of stability, you can expect to get returns on your gold investment for hundreds of years.
Gold investments are a well-established two-way market that are unlike crypto currencies. Gold provides balance to your wealth as its price tends to increase when other asset classes fall. This is why gold investments are particularly appealing to people who are anxious about having paper assets such as bonds or stocks.
- How does gold investment work?
Gold investments can take the form of physical gold coins, bullion, or bars. The value of gold increases over time, so the value of your investment also increases in real time.
Investing in physical gold follows the common rule: buying low and selling high. Profits are only made when your capital appreciates since there is no interest for holding gold. You can be protected from economic or financial downturns as gold prices tend to rise when other investment decrease in value.
- What is the best gold investment for beginners?
If you are only starting to dip your hands in gold investments, your best bet would be on well-established UK bullion coins such as sovereigns or Britannia, as they are also tax-free. The premiums are low on these coins. At the same time, they are also easy to sell at excellent prices.
There’s an array of options when buying sovereign coins as you can choose from a variety of sizes and ages of coins.
As a beginner, opt for bullion coins rather than those with proof finish, with the latter being more for seasoned collectors. Boxed collectors coins or proof coins would cost you more. If you are seeking to balance your portfolio, buying gold coins is a good move. With these coins, you have the flexibility of selling just small parts of your holding.
If you prefer to buy gold bars, make sure that you purchase from a professional gold dealer only and be wary about lower grade bars on EBay. Authentic gold bars should be certified and come with a serial number, with at least a 999.9 purity mark.
- Is it wise to invest in gold now?
This is a good year to invest in physical gold, as prices are significantly lower compared to when the market was at a high. You may not see gains right away, as there are several factors that may influence prices such as Brexit, large price correction on equity markets, and credit bubbles forming in the background.
As of March this year, the gold price saw a 12% markdown from it's all-time high and a 13% off compared to its peak in the past 12 months. This gives you a window of opportunity to buy more gold with the same amount of money. Experts predict that gold prices will be propelled upwards in the next 18 months due to a substantial stock market correction.
- Where do I buy physical gold?
For your security and peace of mind, it is best to buy your gold from specialist gold dealers. Make sure that the dealer you're purchasing your gold from is a member of the British Numismatic Trade Association (BNTA).
A number of these gold dealers will have online shops where they show live pricing as well as discounts on quantity purchases. The best dealers will also offer you free advice or guide you towards making the most appropriate choices when investing in gold coins or bars. Check their track record through customer reviews, and learn from their recommendations and buying experience.
The Golden Touch
Investing in physical gold now will most likely be one of your golden tickets to financial stability and wealth. When you weigh the advantages and take into consideration the benefits of gold investments, then you will most likely decide to start walking your way up the rainbow and all the way to your own pot of gold.
Daniel Fisher formed Physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.