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How to Invest in Gold in the UK

Tobi Opeyemi Amure
Reviewed by:
How to invest in Gold UK

In this article, I will explore the various methods and considerations for investing in gold within the UK.

Discover the steps, strategies, and key insights to help you navigate the world of gold investments effectively and safely.

This article was reviewed by Tobi Opeyemi Amure, an investing expert and writer at InvestopediaInvesting.com, and Trading.biz.

How to Buy Gold in the UK – Ways to Invest

Here I’ll share the various ways UK investors can invest directly or indirectly in gold.

1. Physical Gold

Investing in physical gold offers a range of options through dealers and banks, both online and offline.

The allure of physical gold lies in its diverse shapes and sizes, catering to individual preferences.

Among the common types, gold bullion coins hold popularity among British investors, with Britannia and Sovereign coins being prevalent.

These coins hold legal tender status, making them exempt from capital gains tax and VAT upon purchase or sale. In the US, American Eagle and Canadian Maple Leaf coins enjoy greater prominence.

Gold bullion bars are often synonymous with the concept of gold. Available in varying weights, sizes, and purity, these bars bear a seal on top, assuring their authenticity. They are recognised globally for their intrinsic value.

For those seeking a blend of investment and adornment, gold jewellery presents an appealing option.

Apart from its aesthetic appeal, gold jewellery frequently incorporates precious metals and gemstones, enhancing its allure. It serves not only as a tangible store of value but also as an heirloom passed down through generations.

While direct gold purchases have their advantages, there are considerations to bear in mind.

Proper storage is crucial due to the significant value of gold coins and bars.

The Royal Mint in the UK offers a secure storage service for gold owners, subject to an annual fee based on a percentage of the total value of the stored gold.

Alternatively, individuals can opt for safe deposit boxes in banks or invest in high-quality home safes.

In terms of insurance coverage, jewellery holds an advantage. Home insurance policies typically cover the value of stolen valuable jewellery, whereas gold coins and bars may not enjoy the same level of protection.

It’s important to note that jewellery, although offering aesthetic and sentimental value, may not be the most suitable choice for those primarily seeking investment purposes.

The craftsmanship involved in creating jewellery often leads to a higher retail price, resulting in a melt-down value that may be lower than the initial purchase price.

Therefore, careful consideration of one’s investment goals is crucial when deciding between different forms of physical gold.

2. Investing in Gold Companies

Exploring the gold market extends beyond physical gold to investing in gold mining, refining, and trading firms.

This alternative approach offers opportunities to gain exposure to the yellow metal through established industry players like Barrick Gold Corporation (NYSE: GOLD), Newmont Corporation (NYSE: NEM), and AngloGold Ashanti (NYSE: AU).

Investing in these companies allows individuals to tap into the potential of the gold sector.

As the price of gold rises, mining firms typically experience improved profitability, which can translate into higher share prices or increased dividend payouts. This potential for financial rewards attracts investors seeking to benefit from the positive correlation between gold prices and mining company performance.

However, it’s important to note that investing in gold mining companies involves considerations beyond gold price movements.

Factors such as overall profitability, geopolitical risks, and environmental impact can significantly influence the performance of these firms. While rising gold prices may generally support mining company shares, other dynamics come into play.

It’s worth noting that mining operations often incur substantial costs and may accumulate significant debt.

When interest rates rise, servicing this debt becomes more expensive, impacting the earnings and financial health of mining companies, and subsequently affecting shareholder returns.

Assessing these factors alongside gold price trends is essential when evaluating investments in gold mining, refining, and trading firms.

By diversifying investment strategies to include gold-related equities, individuals can gain exposure to the broader gold market and potentially benefit from the performance of established industry players.

Conducting thorough research and staying informed about industry-specific factors can help investors make informed decisions within the dynamic realm of gold mining investments.

3. Investing in Gold ETFs

For investors seeking exposure to gold without directly investing in businesses or physical gold, a viable option is to consider purchasing shares in a gold exchange-traded fund (ETF).

These investment vehicles offer a convenient way to gain indirect access to various forms of gold, including coins, bars, and stocks, through a single investment position.

One of the advantages of investing in a gold ETF is that it allows investors to delegate the majority of investment decision-making to professional fund managers. This can be particularly beneficial for those who prefer a hands-off approach or lack in-depth knowledge of the gold market.

Additionally, by investing in an ETF, investors can bypass the logistical concerns associated with physical gold, such as storage and insurance, as these responsibilities are handled by the fund.

However, it’s important to note that investing in a gold ETF is not without its considerations.

One aspect to be mindful of is the recurring annual fees associated with the fund, which can erode investment returns over time. It’s essential to carefully evaluate these fees and compare them to the potential benefits and returns provided by the ETF.

Furthermore, it’s worth noting that the composition of the ETF can vary. Some funds primarily hold physical gold, while others may focus more on gold-related stocks or derivatives.

Investing in an ETF that leans heavily towards gold stocks can introduce higher levels of volatility, as these stocks can be influenced by factors beyond just the price of gold itself, such as company-specific performance or market sentiment.

Before investing in a gold ETF, it’s crucial to thoroughly research and understand the specific fund’s investment strategy, objectives, fees, and historical performance.

This will help investors make informed decisions that align with their investment goals, risk tolerance, and desired exposure to the gold market.

Investing in Gold with eToro in the UK.

How to Buy Gold ETFs in the UK?

To buy gold ETFs in the UK, you can follow these general steps:

  1. Choose a brokerage platform: Select a reputable brokerage platform that offers access to a wide range of investment products, including gold ETFs. Ensure that the platform is authorised and regulated by the relevant financial authorities, such as eToro.
  2. Open an account: Sign up and open an investment account with the chosen brokerage platform. This typically involves providing personal information and completing the necessary verification process.
  3. Research available gold ETFs: Explore the available gold ETFs offered on the platform. Consider factors such as the ETF’s expense ratio, tracking methodology, liquidity, and the underlying index it aims to replicate.
  4. Evaluate performance and holdings: Review the historical performance and holdings of the gold ETFs you are interested in. Look for ETFs that align with your investment goals and risk tolerance.
  5. Place an order: Once you have identified a gold ETF that suits your investment objectives, place an order through your brokerage account. Specify the number of shares or the amount you wish to invest.
  6. Monitor your investment: Keep track of your gold ETF investment and regularly monitor its performance. Stay informed about any news or updates that may affect the gold market or the specific ETF you have invested in.

Is Gold a Good Investment?

Here are a few key points to consider when considering gold as an investment:

Diversification: Gold is often considered as a diversification tool within an investment portfolio. It has historically exhibited a low correlation with other asset classes like stocks and bonds, which means that it may behave differently and potentially act as a hedge during market downturns.

Store of value: Gold has been recognised as a store of value for centuries. It has intrinsic worth and can serve as a hedge against inflation and currency fluctuations. In times of economic uncertainty or when confidence in traditional currencies is low, gold may be perceived as a safe haven asset.

Long-term performance: Gold has shown the ability to retain its value over the long term, although its price can be volatile in the short term. Its performance can be influenced by various factors, including global economic conditions, interest rates, geopolitical events, and investor sentiment.

Opportunity cost: It’s important to consider the opportunity cost of investing in gold. Gold does not generate income or dividends like stocks or bonds. Therefore, investors may miss out on potential income or capital appreciation from other investments by allocating a significant portion of their portfolio to gold.

Risk factors: Like any investment, gold carries its own set of risks. The price of gold can be influenced by various factors, and its value can fluctuate. It’s important to carefully evaluate the risks associated with gold investments, including liquidity risk, storage costs, and the potential impact of changes in supply and demand dynamics.

Ultimately, whether gold is a good investment depends on your financial goals, risk tolerance, and overall investment strategy.

What Are the Disadvantages of Investing in Gold?

While investing in gold has its advantages, there are also some disadvantages to consider:

  1. Lack of income: Gold is a non-income-generating asset, meaning it does not produce dividends or interest. Its value is primarily determined by supply and demand dynamics and market sentiment.
  2. Volatility: While gold is often considered a safe haven asset, it can still experience price volatility. Fluctuations in global economic conditions, interest rates, and investor sentiment can impact gold prices.
  3. Storage and security: Physical gold requires secure storage, which can come with associated costs and potential security risks. Storing large quantities of gold may require additional arrangements, such as safe deposit boxes or insured vaults.
  4. Transaction costs: Buying and selling physical gold may involve transaction costs, including premiums, commissions, and shipping fees. These costs can reduce the overall return on investment.
  5. Limited income tax benefits: Unlike some investment vehicles, gold does not offer significant income tax advantages. Profits from gold investments may be subject to capital gains tax.
  6. Opportunity cost: Investing in gold means allocating capital that could be invested in other assets such as stocks, bonds, or real estate. Depending on market conditions, these alternative investments may offer higher potential returns.

It’s important to assess these disadvantages alongside the potential benefits of investing in gold and consider how gold fits into your overall investment strategy and financial goals.

Is Gold a Better Investment Than Stocks?

Determining whether gold is a better investment than stocks depends on various factors and individual circumstances.

Here are some points to consider when comparing gold and stocks:

  • Return potential: Historically, stocks have shown the potential to deliver higher long-term returns compared to gold. Stocks represent ownership in companies, and their value can appreciate over time as companies grow and generate profits. However, stock returns can be volatile and influenced by market conditions.
  • Risk and volatility: Stocks generally carry higher risk and volatility compared to gold. Stock prices can experience significant fluctuations due to factors such as economic conditions, company performance, and market sentiment. Gold, on the other hand, is considered a more stable investment and can act as a hedge during periods of market uncertainty.
  • Diversification: Both gold and stocks can play a role in diversifying an investment portfolio. Gold’s low correlation with stocks and bonds means it can potentially offset losses during market downturns. By diversifying across different asset classes, investors can reduce the overall risk of their portfolio.
  • Income generation: Stocks have the potential to generate income in the form of dividends, which can contribute to overall investment returns. Gold, on the other hand, does not generate income. Its value primarily relies on price appreciation.
  • Inflation protection: Gold is often considered a hedge against inflation. During times of inflation, the purchasing power of fiat currencies may decline, and gold may retain its value or appreciate. Stocks can also offer some protection against inflation, as companies can adjust their prices and earnings to account for inflationary pressures.

Ultimately, the choice between gold and stocks as investments depends on individual financial goals, risk tolerance, and time horizon.

Many investors choose to have a diversified portfolio that includes both asset classes to balance risk and potentially benefit from different market conditions.

Final Thoughts

In conclusion, investing in gold can be an attractive option for UK investors seeking diversification and a potential hedge against market volatility.

There are various avenues to invest in gold, including physical gold, gold ETFs, gold mining stocks, and gold-focused funds.

It’s important to carefully evaluate your investment goals, risk tolerance, and financial circumstances before deciding on the best approach.

Consider factors such as storage and security, liquidity, and the potential risks associated with gold investments. Remember, gold should be considered as part of a well-diversified portfolio and not as a standalone investment solution.

FAQs

How much should you invest in gold?

The amount to invest in gold depends on your financial situation, risk tolerance, and investment goals. It is typically recommended to allocate around 5-10% of a diversified portfolio to gold. However, individual circumstances may vary.

Is it safe to invest in gold?

Investing in gold is generally considered safe due to its historical store of value and potential to act as a hedge against inflation and market volatility.

Should you invest in gold in the UK?

Investing in gold in the UK can be a viable option for diversification and potential protection against market uncertainties. Gold has been regarded as a safe haven asset over time, and its value has shown resilience during economic downturns. However, it’s essential to consider your individual financial goals, risk tolerance, and investment strategy before deciding to invest in gold.

What is the safest way to invest in gold UK?

The safest way to invest in gold in the UK is typically through reputable and regulated sources such as established bullion dealers, gold ETFs, or allocated storage services.

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Will Fenton is the founder of Sterling Savvy. He is a personal finance expert and writes about trading, investing, budgeting, and other financial topics.

Along with his education in Economics & Finance, he has experience working in the financial services industry in London working for one of the UK’s leading financial companies, “a trustworthy and respected provider of news, education and market analysis for the everyday investor”.

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