A Guide to Buying Gold

What You Need to Know

Gold is seen by many investors as the ‘ultimate safe haven’ for their money.
As well as always being in demand, gold investments also guard savings against the falling pound as they are valued in US dollars.
Gold is also used widely in industry and manufacturing, most notably for making electronics. As such, values should rise as consumer confidence grows.
However, savvy investors are always wary of ‘putting all their eggs in one basket’. So, even if you see gold as the right investment option for you, ensure you diversify your assets and manage any risk.
If you are looking to buy gold coins such as sovereigns or Krugerrands, ensure you go with a reputable dealer.
The World Gold Council’s ‘Where to Buy’ directory – available online – is a good way of finding reputable gold dealers.
Though gold is less volatile than other precious metals it's a good idea to keep a close eye on the latest commodity prices if you're planning to buy.
As well as investing in physical gold, you can also invest in companies mining for or processing gold, or buy gold certificates.

Benefits of Buying Gold

Gold has been a popular investment option for millennia, and tends to be particularly popular among investors at times of economic uncertainty. The precious metal is credited with having a number of advantages over other assets. For example:

Gold is priced in US dollars. As such, it may prove a good hedge against a weak pound, protecting savings from currency devaluation.
Additionally, gold is also seen as a ‘safe haven’ for investors, offering protection against not just volatile currency markets but also uncertain property markets and stocks and shares.
Gold is used widely in industry and manufacturing, most notably for making electronics. As such, values should rise as consumer confidence grows.
Gold is a ‘liquid’ asset. That is, it is always in demand and so it is easy to buy and sell, even if supply rates can fluctuate.

The price of gold over the past ten years: Copyright: goldmadesimple.com

Potential Drawbacks of Investing in Gold

Despite its status as a ‘safe haven’ for investors, the price of gold can still go up as well as down. As such, you shouldn’t expect guaranteed returns on your money. Instead, you should ensure you buy and then sell gold at the right time.

Keep on top of small fluctuation as well as longer-term trends and be sure to seek out expert professional help if you have any doubts about putting money into precious metals.

It’s also a good idea to diversify your investments, rather than simply putting all your money into gold. So, put some money into a different asset class in order to minimise your exposure to risk.

How to Buy Gold

If you decide that gold is right for you, there are a number of options open to you. You may want to physically take ownership of gold, or buy gold bars or coins and then pay for it to be stored in a bank’s vault. Alternatively, you could put your money into specialist funds that track the value of gold or which invest in gold-mining operations around the world.

Gold Bars

Gold bars have long been the traditional way of investing in gold, with thousands of these stored in bank vaults right across the world. While in some countries – including Switzerland – it’s possible to buy a bar of gold at the equivalent of a high street bank, in the UK, you will need to go through a specialist seller, who will take a commission.

ATS Bullion, which is located alongside the Savoy Hotel in London, for instance will sell you a kilo bars of gold, though you may be required to prove that you are not using your investment to launder money.

Note that, if you are buying a small bar of gold, you should expect to pay a high premium. Indeed, when the cost of going through a seller, as well as the manufacturing and marketing costs, are taken into account, you will need the value of gold to go up by as much as 10 per cent before you actually make a profit.

Of course, relatively few investors are able to buy a whole bar of gold. However, you are able to purchase small fractions of a bar. A number of firms, including GoldMadeSimple offer pooled gold bullion investment opportunities, enabling you to take advantage of the benefits of putting money into precious metal with relatively little capital.

Whatever the size of gold bar you invest in, it’s wise to go through a dealer that is a member of the London Bullion Market (LBMA), as all the gold held in their vaults is certified as genuine.

Gold Coins

Gold coins are an easy, and relatively affordable, means of investing in physical gold. Moreover, they can be purchased with relative ease through specialist brokers, while some investors are also attracted to the history and even the look of gold coins.

The most-commonly-held gold bullion coin in the world is the South African Krugerrand, with this popular among both investors and collectors. These are available in one-ounce or half-ounce versions, costing several hundred pounds each, though their valuation is subject to fluctuations.

Alternatives to the Krugerrand include the Royal Mint’s Britannia one-ounce gold coin, with these having the additional benefit of being exempt from capital gains tax. Meanwhile, the Australian Gold Nugget, the Canadian Gold Maple Leaf, the American Gold Eagle and the French Napoleon coins can also be purchased from a range of dealers and offer the chance to physically own some gold bullion of your own.

Be sure to only do business with reputable dealers. The ‘Where to Buy’ directory, available online at the World Gold Council website, is a useful resource for finding a reputable dealer and making sure you don’t get conned.

Gold Certificates

Half-way between actually taking ownership of a gold bar or coin and investing in a specialist fund, gold certificates offer the chance to own real gold without actually taking delivery of it.

A number of banks, particularly those in Switzerland, issue gold certificates. So, while the bank itself carries on storing the gold, the pieces of paper confirm your ownership of it. As well as the advantage of having your gold stored securely, this also allows you to sell it on at a time convenient to you.

Exchange-Traded Funds

Gold EFTs (exchange-traded funds) allow you to invest in gold without you physically owning any of the precious metal. Quite simply, they are passive investments, meaning they mirror the direction of the gold market, rising if the price of gold goes up and declining in value if it falls. Shares in such funds can be bought and sold just like any other share, though if you are new to investing your money, it may be a good idea to hire a stockbroker to do this on your behalf.

EFTs are seen by some personal finance advisors as a good way of taking the first step into investing in gold as they allow you to experience the benefits and potential drawbacks of putting money into this type of asset without having to risk thousands of pounds.

Others Trusts and Investment Vehicles

One other way of making money from gold is to invest in gold-mining companies rather than in physical gold. Again, this is relatively simple and straightforward and can make a good addition to a sensible investment portfolio.

Among the biggest investment vehicles for this are BlackRock Gold & General and Investec Global Gold, both of which specialise in making money from precious metal exploration and extraction. Be aware, however, that you will likely be required to invest a minimum amount in a fund and to keep your money in it for a fixed period of time, thereby increasing your exposure to any market volatility.

Meanwhile, Exchange Traded Commodities (ETCs) give you the chance to short or leverage your gold investments, meaning you can make money even if the price of gold falls. Again, seek professional advice if you have any doubts over your investment options.