Should you have gold in your investment portfolio?

17 February 2017
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By conventional thinking there is only enough mined gold in the world to fill three Olympic-sized swimming pools (although this figure is up for contention).

And while there is more gold to be mined, the way we use gold now is very different to how it’s been used for the last 6,000 years. The gold found in jewellery will have been used over and over again throughout human history, whereas now gold is also used in such roles that include conductors in micro-electronics (low currents pass very easily through it, and it doesn’t tarnish) and it’s even been sent into space. In the former case, the amounts used are miniscule, meaning the gold doesn’t get harvested when the electronics are thrown away as it’s just not economical to do so.

As a species we are ramping up the amount of gold we ‘consume’ rather than ‘borrow’ from the generations that will come after us.

Should I invest in gold?

The question of whether you should invest in gold or not is divisive in a way that other discussions about assets just aren’t. The fact is that gold is just a lump of metal. It doesn’t create any income or ‘work’ for you in the way that other assets do. You certainly won’t be collecting any rent or dividends on it. You’re just waiting for somebody to come along with a good offer somewhere down the line. However, there are compelling reasons to buy some as part of your portfolio.

Year-on-year, the price of gold per ounce has risen by 27.8% (2015-2016). In the same timescale before that it fell by 6.1%. Gold is a volatile asset and not for the faint-hearted. But, because it has, historically, always had value for what it is rather than what it does, it enjoys popular use as insurance against economic shocks – and as you may well remember, 2016 had plenty of those.

 

It would also be fair to say that, along the same theme, there’s a fair amount of cult behaviour around gold (and silver). People who believe that the financial system is about to collapse tend to put gold in the same class as tinned food and ammunition, and will always be willing to pay a high price for it when society is heaving left and right – and there are plenty of people around willing to sell it to them.

Despite what Warren Buffet says about it, we at Moneywise are fond of diversification. A decent multi-asset portfolio should include cash, stocks, bonds, property and, according to The World Gold Council, 2%-10% of its holdings in gold – depending on your risk profile (with the latter end of the scale reserved for those who like to court danger).

Now if you’re imagining an armoured truck turning up at your door with a brick of the yellow stuff, your ideas are slightly out of date (although you can do that, of course). Nowadays there are multiple ways to invest in gold. We explain some of the more popular ones here.

Investing in gold through funds

By far the easiest – and cheapest – way to invest is to use a fund. As part of our First 50 Funds selection, we recommend Source Physical Gold P-ETc (SGLD), which allows you to claim ownership of an amount of gold bullion held in the vaults of JPMorgan Chase.

The advantage of funds is that they are low cost – the on-going charge on the fund we recommend is 0.39% -  and many spread their holdings around different companies and geographical locations, which in turn lowers your exposure to risk.

 

Investing in physical gold remotely

Another option is to buy physical gold but keep it stored off-site, meaning you don’t have to worry about security or insurance. A further advantage to doing this is that while in the past you were limited to buying gold in large amounts due to having to buy via weight instead of price, which was obviously very costly, you can now buy a ‘share’ of a bar based on price instead.

This is a relatively new concept, at least for the Royal Mint, which allows you to do this through its ‘Signature Gold’ service. With this you can buy a fraction of a bar held in its vaults (for a small fee of course – 0.5% + VAT per annum), and you can then sell it back to the Royal Mint (hopefully for more than your bought it for) whenever you wish – or even buy more regularly, as many do with funds.

 

Investing in physical gold and actually owning it

The last method we’ll cover, and by far the riskiest – but arguably the most fun (especially if you throw a lot of dinner parties) – is actually buying the stuff and getting it delivered to your house. If you do this, you’ll be entirely responsible for keeping it safe and you’ll have no recourse if your ‘vault’ gets emptied (so only invite people you trust to said dinner parties). But there are advantages.

The first is that owning gold is pretty thrilling. It’s an absorbing metal that fills your hand, its colour shimmers and shifts under different lights and if you’re in a quiet room you can almost hear its history, whispered and seductive. And from a purely sentimental value, having something to hand down to your children that they can actually touch has to be more of a thrill than transferring electronic details into their name.

The second advantage is far more practical. In the form of a sovereign, Britannia, Lunar or Queen’s Beast Bullion coin (all of which you can purchase from the Royal Mint’s website), gold is a form of legal tender – which means that it’s not liable for capital gains tax. If you do buy a load of them and then sell them later on, the government won’t be asking for a slice of any profit.

Taking a closer look at the Queen’s Beast Bullion, these are gold and silver coins – of which there are due to be 10 in all – that feature one of the heraldic Queen’s Beasts apiece. These are a mixture of real and mythical animal statues that stand at over six feet each, and that ‘stood guard’ outside Westminster Abbey during the Queen’s coronation ceremony. Each represents a symbol of her past – including The White Lion of Mortimer and The White Horse of Hanover. Nowadays these statues can be found in the Museum of History in Quebec, Canada.

However, currently only two Queen’s Beasts coins are available to buy: the Lion of England and the Griffin of Edward III. They can be found on the Royal Mint website and on the secondary market.

All that glisters is not gold

But for all this, gold simply isn’t as sensible an option as more traditional investment methods are. It’s, in the literal sense, useless for most of us, volatile and burdensome.

 

That said, if you’re of a more cynical bend when it comes to the worldwide economy, just take a look at the gold price versus the FTSE 100’s performance between 2008 – 2009. Hint: it outperformed the flailing stock market massively. So there’s definitely a place for it in some portfolios. 

In reply to by anonymous_stub (not verified)

Taking a closer look at the Queen’s Beast Bullion, these are gold and silver coins – of which there are due to be 10 in all – that feature one of the heraldic Queen’s Beasts apiece. These are a mixture of real and mythical animal statues that stand at over six feet each, and that ‘stood guard’ outside Westminster Abbey during the Queen’s coronation ceremony. Each represents a symbol of her past – including The White Lion of Mortimer and The White Horse of Hanover. Nowadays these statues can be found in the Museum of History in Quebec, Canada.

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