A golden opportunity or a risky investment?

26 June 2019 - Elizabeth O'Hanlon

In times of crisis, investing in gold has traditionally been seen as a safe haven for savers. Financial Planning Partner Grant Buchanan considers the issue of going for gold.

Gold has been used for decoration and currency for thousands of years. In around 700 BC an alloy of silver and gold known as electrum was used in the Kingdom of Lydia (part of modern day Turkey) and the Roman Republic issued an official gold coin known as an aureus in 50 BC, although the Romans had been using gold as currency for several hundred years before that. The Venetians first produced the gold ducat in 1284 AD, and in the same year the gold florin appeared, the first major gold currency in England. The acquisition and trading of gold coins has long been a subject in art and literature: think of Long John Silver’s parrot shrieking “pieces of eight!” in Treasure Island, or the paintings of the Dutch Old Masters, such as Rembrandt and de Hooch, who frequently depicted images of people weighing and exchanging gold coins. 

Today we invest our savings in different ways, although traditional ‘safe havens’ in times of uncertainty for investment markets have been bonds, cash and gold. But with bonds and cash cucurrently offering negligible returns, the political turmoil surrounding Brexit, the economic slowdown in China and doubts about the strength of the US economy, many professional investors have been prompted to favour gold.

George Soros, the US billionaire who famously “broke the Bank of England” in 1992 by betting against sterling, and who has an aptitude for calling markets, has been an enthusiastic buyer of the precious metal. Meanwhile, the Royal Mint, the Government body which is responsible for “minting” Britain’s coins, is offering investors the opportunity to invest their pension pots in gold.

However, buying gold in the form of bullion is expensive. There is a buyer’s premium of around 1.5%, and a 1% charge for selling. Then there is the cost of storage and insurance, costing several hundred pounds per year. 

An alternative way of investing in gold is via a security such as an Exchange Traded Fund (‘ETF’), which can carry a lower cost but still  has platform charges and broker fees. There are of course indirect ways of investing in the value of the metal such as to buy shares in gold mines or bullion dealers. 

And what about the return? Gold produces no interest and no income, and the only means of profiting from the investment is by selling it – which may be subject to Capital Gains Tax. However, gold does have the advantage of being a physical asset, and as such can provide some protection against inflation.  Over the past 20 years, the gold price has risen by more than threefold, but gold bought at its peak in 2001 lost 25% of its value over the following five years.  Such figures demonstrate the extreme volatility of the gold market, therefore making it a market to view with caution. Squirelling away small amounts of gold is one thing, investing in ingots, fine wine, art and classic cars however requires expert advice.

The Scrutton Bland Private Client team are committed to helping clients understand the ever-changing financial landscape. As specialists the Scrutton Bland in-house Tax Advisers and Independent Financial Planners are able to provide a joined-up service of financial and tax advice, all under one roof and in the same meeting. 

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