Bullion and Jewellery
For centuries, gold coins and jewellery have been used as small-scale private investments and, for many people today, they remain a good place to start. It must be noted that new purchases may be subject to VAT and both purchases will carry a considerable mark-up on the daily spot gold price. However, such items will hold value in the long term and provide additional enjoyment to the owner! Some older coins, such as the sovereign, are still readily available and they are a good option as they are VAT free and UK gains are exempt from CGT. Some research will likely reveal similar options in many European countries.
Investing in gold ETFs such as GLD
For many people, the most accessible means trading on the gold price is through the use of electronically traded gold funds that track the price of the precious metal. This can be done through the purchase of the World Gold Council backed GLD (or similar) shares. GLD often leads the headlines when gold is discussed and it has become the go-to option for many people wanting to tap into a rising gold price. This can mean it is first to respond, as it did on 3rd January last year, with deposits increasing by 1% on one day alone. However, investors should note that they are not buying gold directly, just shares in a fund. They will have little protection in case of theft or fraud and they will have no rights to withdraw any physical metal.
Investing in physical gold funds
Fear of exposure to the banking system and the increasing influence of paper gold contracts may put many people off using ETFs that rely on trading such futures and similar instruments. An alternative here is to use a physical gold fund – one that backs its share price with 100% allocated bullion stored in secure vaults. While retail investors will still not be able to withdraw any bullion themselves, they should offer a greater sense of security.
Trading Gold Futures
Many new online trading sites and management companies allow investors to access futures contracts as a way of betting on future price movements in the market. These can be highly leveraged and, as such, may offer the investor both high risks and high returns. Such activities are better suited to the semi-professional trader and are certainly not suitable for the small investor seeking to secure a safe haven for their capital.
Online vault services
New products such as Glint and Goldmoney offer a way of buying gold that is stored in a private vault. The gold can be transferred between account holders or spent by converting it into fiat currencies. These services do still hold some risk as they are not backed with any governmental insurance such as individuals benefit from with normal banks. These services are growing in use and provide a niche market outside the regular financial services. Detailed research is essential as such deposits cannot be held in a pension fund and the fees incurred may be quite high.
Investing in mining stocks
Gold mining stocks can act as a leveraged bet on the direction of gold prices. They often follow the spot gold price, but with a greater volatility, rising quickly as the profitability of miners grows with perceived demand. Once gold prices exceed the costs of exploration and production, the profitability and potential dividends of these companies increase exponentially. As mining is such a specialised industry, it is recommended that investors use a precious metals mining fund that will spread the risks and potential rewards, providing a dividend on top of any capital growth.
But wait! There is one final, and perhaps surprising solution, to many of the perceived failings of gold as a form of money: one that is beginning to grow in popularity – the blockchain!
Where Bitcoin is failing due to a lack of any intrinsic value beyond its scarcity – which is itself being undermined by the explosion of new alt coins – a gold backed crypto-currency would be one viable alternative. Using the security of blockchain transactions tied to audited and secure assignments of physical bullion, a truly digital gold currency would meet all the requirements of sound money and offer a serious challenge to the existing fiat currencies. A number of new offerings are making headway in this rapidly growing field, such as those reviewed by sites such as Goldscape.net. … (excerpt from GEAB 131 / 2019)