Royal Mint launches bullion trading site
The Royal Mint has launched an online system for buying, storing and selling gold and silver bullion coins.
The new site, royalmintbullion.com, provides live pricing information for gold and silver at a rate linked to the current precious metals price.
Once a customer sets up an account and purchases some coins, they will either be delivered to the person's home or stored on-site in a protected vault. If keeping the gold yourself, you would be responsible for storage, security and insurance.
To have the Royal Mint store your gold you would need to buy at least one 'tube' of coins, meaning paying £4,719.25 for a bundle of 25 gold sovereigns or £7,905.06 for a bundle of 10 of the larger gold Britannia coins. Prices are accurate at the time of writing.
However, critics have voiced concerns that the price of having the coins stored by Royal Mint - 1% plus VAT for a total of 1.2% annually - is exorbitant.
Laith Khalaf, senior analyst at investment platform Hargreaves Lansdown, says: "At an annual charge of 1.2% this looks like a pricey way to hold gold, when an exchange traded fund can give you the same exposure for around a quarter of the annual cost.
"For those with deep pockets, many banks offer bullion services for around 0.25 to 0.35% a year, but you need to buy at least £1 million worth, and even then you won't ever get to see it.
"Investors need to understand investing in gold is by no means a one-way bet. Gold is notoriously difficult to value, subject to seasonal demand and, unlike shares and bonds, it provides no income for investors. Price movements can be fickle and unpredictable."
According to Khalaf, gold tends to make an effective hedge against "calamity", rising in the wake of the financial crisis and falling sharply when the American central bank hinted at tapering quantitative easing. Because economic forecasts are currently generally positive, he suggested it might not be a good time to buy.
Even investors looking to hedge against unforeseen dips should hold no more than 5% of their portfolio in gold, he concludes.
This article was written for our sister website Money Observer
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
Lower interest rates encourage people to spend, not save. But when interest rates can go no lower and there is a sharp drop in consumer and business spending, a central bank’s only option to stimulate demand is to pump money into the economy directly. This is quantitative easing. The Bank of England purchases assets (usually government bonds, or gilts) from private sector businesses such as insurance companies, banks and pension funds financed by new money the Bank creates electronically (it doesn’t physically print the banknotes). The sellers use the money to switch into other assets, such as shares or corporate bonds or else use it to lend to consumers and businesses, which pushes up demand and stimulates the economy.
An Exchange traded fund is a security that tracks an index or commodity but is traded in the same way as a share on an exchange. ETFs allow investors the convenience of purchasing a broad basket of securities in a single transaction, essentially offering the convenience of a stock with the diversification offered by a pooled fund, such as a unit trust. Investors buying an ETF are basically investing in the performance of an underlying bundle of securities, usually those representing a particular index or sector. They have no front or back-end fees but, because they trade as shares, each ETF purchase will be charged a brokerage commission.