Gold Rates

What Are the Benefits of Investing in Gold?

Gold is a key portfolio diversifier for British investors seeking robust crisis protection. It also provides legacy wealth protection, and is free of counterparty risk.

In the UK, gold bullion coins classified as legal tender (such as Britannias and Sovereigns) are exempt from VAT, and may be free of Capital Gains Tax (CGT). These tax advantages enhance net returns.

1. It is a safe haven asset

With inflation running at 40-year highs and fears of a recession, many investors are looking for ways to protect their wealth. One option is to invest in gold. Proponents of this precious metal argue that it is a safe haven asset and will retain its value even when other investments suffer. However, it is important to understand the risks associated with investing in gold before making a decision.

The price of gold surged during the 2008 financial crisis as investors sought a safe haven from falling stock markets and soaring debt levels. Unlike most other assets, gold is not tied to any currency and is free from the fluctuations of international markets. This unique characteristic makes it a valuable addition to any investment portfolio.

In addition, the physical properties of gold make it a stable store of value. Investors can purchase gold bullion bars or coins from reputable dealers in the UK or buy into an exchange-traded fund (ETF). ETFs provide investors with the opportunity to indirectly own gold through shares, which avoids issues such as storage and insurance costs.

However, there are some important considerations when considering whether to purchase gold directly or invest in a gold-related company. For example, gold mining companies often carry large debt balances and may face geopolitical risks. Therefore, it is important to research the companies before making a purchasing decision.

A recent poll conducted by the Royal Mint found that 23% of investors plan to invest in gold this year. This figure rises to 58% among millennial investors. The poll also revealed that the majority of investors who are planning to invest in gold are doing so for its safety-haven qualities.

The price of gold is influenced by a variety of factors, including geopolitical tensions and economic uncertainty. The price of gold also tends to rise when interest rates are low or inflation is high, as paper money loses its purchasing power compared to the precious metal.

Astute British investors can reap tax rewards by judiciously adding physical gold to their portfolios following expert tax guidance. This can reduce their entry costs and improve the net returns they achieve over time.

2. It is a hedge against inflation

Gold is a popular choice as an inflation hedge, offering a safe haven against rising prices. It has been shown to rise relative to the rate of inflation over long periods, meaning that it can be used as a way to protect against rising living costs. Inflation is a key concern for investors, with the purchasing power of currency declining over time. This is why gold offers a good inflation hedge and can be a valuable addition to any portfolio.

One of the best ways to invest in gold is by buying physical bullion coins and bars. These can be held at home or stored with a bullion storage service, which will take care of the safety and insurance coverage. Gold is also available as a fund, which can be used by investors with different risk tolerances. However, the performance of these funds has not been great over recent years, so it is important to choose carefully.

There are many different reasons to invest in gold, including its role as a hedge against inflation and political uncertainty. However, it is important to remember that gold is not a pure growth asset and should be viewed as a safe haven for investors rather than a means of growing wealth. It has been shown to rise in value over time, but it is not guaranteed to do so. Therefore, it is important to diversify your investment portfolio by holding other assets alongside gold.

As the UK’s leading independent pension provider, we recommend that people consider adding physical gold bullion to their retirement portfolio through a Self-Invested Personal Pension (SIPP) or Small Self-Administered Scheme (SSAS). This allows them to benefit from the precious metal’s enduring value and diversification while helping to protect against inflationary pressures.

There is no definitive explanation for why gold acts as an effective inflation hedge, but it is likely due to its low correlation with other assets and the fact that it is easy to store and transport. In addition, it has been shown that over long periods, such as centuries, gold’s supply increases at the same rate as global economic output.

3. It is a store of value

Gold is a store of value that has stood the test of time. Its rarity, durability and intangible properties make it a safe haven asset that can protect against financial chaos. This is especially true in the context of a recession. Gold’s returns have been positive during five of the last seven recessions, according to data from the World Gold Council (WGC). The WGC also notes that gold’s return on investment has been able to beat inflation in every one of the past 20 years.

Many experts suggest investing 5-20% of portfolio assets into physical gold bullion. This enables investors to hedge systemic risks like currency debasement, inflation and market volatility in ways that other investments cannot.

UK investors can buy physical gold bullion through a variety of dealers, including the Royal Mint. However, purchasing physical gold has its own set of challenges. For example, gold bars and coins must be stored securely, and storage fees can add up. The Royal Mint offers a secure vault service, but other options include bank safety deposit boxes and high-security home safes.

Another method of acquiring gold is to invest in the mining companies that mine it. This method carries greater risk than simply buying the metal itself, but it can provide higher returns in the long run. In addition, it can be a great way to diversify your portfolio by investing in different gold mining companies.

When you invest in gold mining stocks, your investment can potentially pay dividends, which are cash payments made to shareholders once or twice a year. In some cases, these can be quite significant, particularly if the company is performing well and producing high-quality gold.

Finally, you can also purchase a fund that invests in gold. This option is less expensive than buying individual shares directly and has the added benefit of having the potential to diversify your portfolio by investing in other mining companies and commodity-related businesses. However, it comes with recurring annual fees that can cut into your returns over the long term. Many of these funds also do not own any physical gold.

4. It is a diversifier

In an ideal portfolio, the risk of a recession is diversified across equities (shares), bonds and precious metals like gold. The precious metal has long been considered the classic safe haven asset and a valuable diversifier that increases risk-adjusted returns and decreases maximum drawdown in portfolios. Investing in gold can also help reduce the risk of losing money during market crashes and geopolitical disruptions.

However, many experts are unconvinced that it will protect investors if stocks and bonds collapse. Darius McDermott, managing director of Chelsea Financial Services, argues that while gold has historically been shown to improve risk-adjusted returns and lower maximum drawdowns in a portfolio. It doesn’t have the same risk-off characteristics as shares or bonds. In fact, a gold allocation would not be the best way to hedge against a recession because it doesn’t perform as well as equities in a bull market.

Investors can buy physical gold bullion from dealers, brokers and banks online or in person. The most popular form of UK gold is a coin or bar, which comes in various sizes and weights. The Royal Mint produces two of the most popular coins, the Britannia and Sovereign. which are legal tender and immune to VAT and capital gains tax for UK residents.

Alternatively, investors can invest in companies involved in the gold industry. This is usually done through a fund, which can offer higher returns than buying physical gold. However, these funds come with recurring annual fees that can reduce overall returns. Another option is to keep physical gold within your pension, which can be beneficial if you’re saving for retirement and don’t want to lose the value of the asset in a crash.

Gold has seen an appreciation in price over the last 30 years because of a number of reasons. In addition, demand for precious metals is rising because of the transition to clean energy and a push toward net zero emissions. Metals such as lithium, nickel and platinum are used in batteries and other green energy technologies that are critical to achieving the world’s ambitious emissions-reduction targets.