Best ways to invest in gold and other precious metals.

What are the best ways to invest in gold and other precious metals?

Purchasing and investing in gold can provide an unbreakable element of stability to your portfolio, particularly when the economy is in flux. Precious metals, particularly gold, are viewed as safe havens, preserving and even increasing their value when other investments falter. As a result, gold has become something of a growth asset in recent years (albeit it isn’t usually considered one).

Gold as an alternative investment has unquestionable appeal, especially because you may own the real bullion personally (if you so desire). Here’s everything you need to know about investing’s oldest form.

What factors influence gold’s price?

When there is uncertainty or negativity in other sectors of the market (such as equity and bond markets or the economy in general), and when those other areas are growing well. This link isn’t fixed in stone, but it is the primary reason why most gold investors maintain the commodity — to protect themselves from losses in other areas.

Other factors that may influence gold prices include:

Demand for it – are more people buying it for jewellery?

Low-interest rates — gold prices are often cynically linked to interest rates.

The dollar is weakening.

Low supply – prices rise when more gold is recycled.

Instability in geopolitics

Natural disasters, such as a good monsoon, can boost gold prices by causing impacted countries to invest more of their riches. The inverse of any of the aforementioned, of course, tends to lower gold prices.

 

What are the advantages and disadvantages of investing in gold?

Advantages

Gold, like other precious metals, is said to be inflation resistant, retaining its relative worth over hundreds, if not thousands, of years. Gold has traditionally served as an ‘economic lifeboat’ for countries whose currencies and/or stock markets have crashed. You can keep the money in the country as long as you can physically get the gold out of it. Of course, if the gold is deemed to be an offshore investment, no physical movement is required.

Another advantage of precious metals is that they may occasionally be worn as jewellery, allowing you to wear them.

 Disadvantages

Gold is not a very reliable source of growth when compared to the stock market. Though its price has increased in recent years, it still falls far short of the rewards offered by stocks.

In comparison, both the FTSE and gold prices were high and performing well in 2012. However, gold purchased in 2012 would be almost the same price in 2020. (and would have been less valuable if you had sold it at any other time in the past eight years). In contrast, despite the two separate falls triggered by the Brexit referendum and the coronavirus shutdown, a balanced FTSE 100 share portfolio purchased in 2012 would have gained in value by over 8.5 per cent in those eight years.

In a quick summary: you don’t necessarily buy gold to make money. You buy gold to protect yourself from losing it.

 

Is gold an appropriate investment for me?

This form of investment is unlikely to be the best method for growing your money, especially if you are new to the market. You will not receive any income from rent or dividends, unlike other asset classes such as property or stocks. Although precious metals have a low-risk profile, stock prices are volatile, so you risk losing money if you buy or sell at the wrong time.

Precious metals, on the other hand, tend to keep their value throughout time. As a result, they are frequently used. How do I go about investing in gold?

There are several ways to invest in gold, some of which are relatively easy to do with little sums of money. Here are some of the most prevalent choices:

Gold bullion in its purest form:

You might buy genuine gold bullion, coins, or jewellery if you have a large sum of money to invest. Precious metals are sold by dealers, brokers, and banks, and you must buy from a trustworthy source to ensure your purchase is real.

In the United Kingdom, there are two significant coins: the Britannia and the Sovereign. Capital gains tax may not apply depending on the coin you choose. A coin’s value is determined by its weight, design, and date, so it’s worth obtaining professional help if you’re unsure. Storage is another important factor when dealing with actual gold. You’ll have to figure out the storage facility and insurance fees. You may also hire a dealer to store it for you, but this will be costly as well.

Buying and selling through the Royal Mint:

The Royal Mint will sell you physical gold bullion, which you may either take delivery of (and store as you desire) or deposit in the Vault, the Mint’s storage facility. It involves a yearly storage fee of about 1% of the gold’s value plus VAT. Buying gold from the Mint is a more secure option (i.e. you can be sure that the gold is legitimate and properly stored). The disadvantage is that it could be more expensive. Commodities that are exchanged on an exchange (ETCs)

ETCs are the commodities equivalents of Exchange-Traded Funds (ETFs) – they are traded like shares on investment platforms and are typically significantly less expensive than purchasing actual gold. You usually keep them in an ISA for stocks and shares. Although storage and insurance are free, you will have to pay a fee to buy or sell through a platform.

The ETC keeps track of gold prices by either keeping gold in a vault or buying gold-related products (which can be riskier).

Gold mining and stock distribution:

You might also invest in gold-related industries such as mine, production, refinement, and distribution. Because it is such a large industry, there are numerous options to pick from. Because you’re investing in firms that generate dividends, the returns can be larger than real gold, but the risks are also higher. The price of gold mining stocks will be determined by factors such as product demand, company costs, and the gold price itself.

 

Personal pension with self-investment (SIPP):

If your pension is a special type known as a SIPP, you can even keep gold as an investment. Learn more about storing gold in your retirement account.

Why use an IFA to invest in gold?

You can go it alone and invest in gold for a nominal charge through an execution-only platform. However, this is only a choice if you’re a seasoned investor who is comfortable assessing risk. If this is your first time investing in precious metals, you may want to consult with an independent financial consultant (IFA). They will provide you with market access and will handle the entire process for you. More importantly, they can help you determine whether buying gold is the right decision for you, research the alternatives, and choose how much to invest if you decide to go forward. They can also discuss the Environmental, Social, and Governance (ESG) advantages and disadvantages of each option if you’re interested in ethical investing.

by Rachel Buscall

by Rachel Buscall

Co-Founder & Managing Director at New Capital Link. Having started her career in the financial sector, Rachel demonstrated a natural flair for entrepreneurship.

New Capital Link

Alternative investment specialists offering structured opportunities across the UK & Overseas.

New Capital Link is a boutique London-based introducer that offers unique UK & global investment opportunities worldwide.

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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be very complex and high risk.

What are the key risks?

1. You could lose all the money you invest

If the business offering this investment fails, there is a high risk that you will lose all your money. Businesses like this often fail as they usually use risky investment strategies. 

Advertised rates of return aren’t guaranteed. This is not a savings account. If the issuer doesn’t pay you back as agreed, you could earn less money than expected or nothing at all. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.

These investments are sometimes held in an Innovative Finance ISA (IFISA). While any potential gains from your investment will be tax free, you can still lose all your money. An IFISA does not reduce the risk of the investment or protect you from losses.

2. You are unlikely to be protected if something goes wrong

The business offering this investment is not regulated by the FCA. Protection from the Financial Services Compensation Scheme (FSCS) only considers claims against failed regulated firms. Learn more about FSCS protection here. https://www.fscs.org.uk/what-we-cover/investments/ or

Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here. https://www.fscs.org.uk/check/investment-protection-checker/

The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here. https://www.financial-ombudsman.org.uk/consumers

3. You are unlikely to get your money back quickly

This type of business could face cash-flow problems that delay interest payments. It could also fail altogether and be unable to repay investors their money. 

You are unlikely to be able to cash in your investment early by selling it. You are usually locked in until the business has paid you back over the period agreed. In the rare circumstances where it is possible to sell your investment in a ‘secondary market’, you may not find a buyer at the price you are willing to sell.

4. This is a complex investment

This investment has a complex structure based on other risky investments. A business that raises money like this lends it to, or invests it in, other businesses or property. This makes it difficult for the investor to know where their money is going.

This makes it difficult to predict how risky the investment is, but it will most likely be high.

You may wish to get financial advice before deciding to invest.

5. Don’t put all your eggs in one basket

Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. 

A good rule of thumb is not to invest more than 10% of your money in high-risk investments. https://www.fca.org.uk/investsmart/5-questions-ask-you-invest

If you are interested in learning more about how to protect yourself, visit the FCA’s website here: https://www.fca.org.uk/investsmart

For further information about minibonds, visit the FCA’s website here.https://www.fca.org.uk/consumers/mini-bonds