With inflation running hot and no end in sight, savers are hard pressed to protect their wealth. Precious metals, and gold in particular, have been popular investment assets for centuries. Remarkably, gold has maintained its purchasing power over hundreds of years. This underscores its ability to preserve wealth over long periods of time.
There are a few different ways to invest in gold in the UK. The first way is to buy physical gold. This can be done in the form of coins, bars, or jewellery. Physical gold can be stored in a safe at home or in a deposit box at a bank. However, it can also be expensive to store and insure.
Another way to invest in gold is to buy shares in one or more gold-backed ETFs. ETFs are exchange-traded funds that track the price of gold. ETFs are a more affordable way to invest in gold than buying physical gold. They’re also more liquid, as they can be bought and sold on a stock exchange, in the same way as stocks.
Finally, you can also invest in gold mining companies. Gold mining companies are companies that extract gold from the ground. These companies can be a good way to invest in a gold bull market, as they stand to benefit from rising gold prices.
Here’s a look at each of these investment options, in detail.
Buying Physical Gold
Buying physical gold is the longest running way to invest in gold. You can buy gold coins, bars, or jewellery from a variety of dealers. When buying physical gold, it’s crucial to buy from a reputable dealer who will provide a certificate of authenticity.
There are a few things to consider when buying physical gold. First, you need to decide how much gold you want to buy. Gold is priced by the ounce, so you can buy as much or as little as you want, from a few grams to a larger 1 kg bar if you can afford it.
Second, you need to decide where you will store your gold. You can store it in a safe at home or in a safety deposit box at a bank. It’s also advisable to look into the availability and cost of safe storage options before you buy physical gold. If no such options are available in your neighbourhood, you may want to reconsider your purchase altogether.
Third, you need to decide how you will insure your gold. You can purchase insurance from a private insurer or from your home insurance company. This is another cost to consider before you buy physical gold. You’ll need to consider whether it is worth the expense, in relation to the size of your investment. As gold isn’t an income generating asset, you’ll need to cover this costs out of pocket.
Buying Gold-Backed ETFs
Gold-backed ETFs are a more affordable way to invest in gold than buying physical gold. ETFs are a type of investment fund that tracks the price of gold. ETFs are bought and sold on a stock exchange just like stocks.
Here are some of the best gold-backed ETFs, currently traded on the New York Stock Exchange (NYSE):
- SPDR Gold Shares (GLD)
- iShares Gold Trust (IAU)
When buying gold-backed ETFs, it’s important to understand the fees associated with the ETF. For example, the GLD ETF is almost twice as expensive as IAU. As the ETF covers these fees by selling gold, these expenses will diminish the value of your holdings over time.
It’s also important to understand the risks associated with ETFs. Shares in an ETF represent an indirect claim on the fund’s underlying assets. “You won’t have a direct claim on the fund’s underlying gold bars” according to Stefan Bottine, founder of the TrustedBrokers comparison service. In the event of default, you’ll be exposed to counterparty risk, and may recover less than the face value of your holdings.
Finally, as these ETFs are traded on the New York Stock Exchange, you’ll need to find a broker with access to that market.
Investing in Gold Mining Companies
Another way to invest in the gold market is to invest in gold mining companies. Gold mining companies are companies that extract gold from the ground. These companies can be a good way to invest in the gold market, as they benefit from rising gold prices.
When investing in gold mining companies, it’s important to do your research. You need to choose companies that are well-managed and have a good track record of production. Carefully review who the key decision makers are, and look into the roles they occupied in the past.
You also need to consider the risks associated with gold mining companies. These companies can be volatile, as they’re exposed to a number of risks, including changes in the price of gold, changes in the cost of production, and political risks. That’s why it’s preferable to focus your search on miners who operate in stable jurisdictions, such as the United States, Canada and Australia.
Which Investment Option is Right for You?
The best investment option for you will depend on your individual circumstances and investment goals. If you are looking for a safe haven asset to protect your wealth, then buying physical gold may be a good option for you.
If you are looking for an affordable and highly liquid way to invest in gold, then buying gold-backed ETFs may be a good option.
And if you are looking for an investment that can potentially generate income, then investing in gold mining companies may be a good option, as some pay dividends.
No matter which investment option you choose, it’s important to do your research and understand the risks involved. Gold is a volatile asset, and its price can fluctuate significantly. Therefore, it’s important to only invest money that you can afford to lose.
