Gold gains new lustre as global threats grow
The investment column that makes the most of your money
GOLD is one of the most unusual investments that anyone can make. It does not pay dividends, it does not produce earnings and it does not make promises about growth prospects – like most firms do.
But it does deliver returns, outperforming property and the FTSE 100 Index over the past ten years. If someone had put £1,000 into the FTSE in 2007 for example, it would be worth £1,640 today, while the same amount invested in 20-year gilts would be worth £1,350, or £1,190, if the cash had been ploughed into UK property. An equal investment in gold would be worth more than £2,300.
Gold’s performance has clearly been very strong over the past decade, but interest in the metal has also been picking up in recent weeks and months.
Why? Because it is the ultimate insurance policy. The price tends to rise when other assets, such as shares, bonds and property, start to falter or when inflation starts to move upwards. Demand rises if there are concerns about the banking system’s strength. And gold comes into its own when the world appears close to collapse.
Today, many of these issues are on the horizon and moving nearer. North Korea, President Trump and tension in the Middle East all pose risks to political stability, and back in the UK, the political outlook is desperately uncertain.
Our economic prospects are worrying too. Inflation is picking up, growth is faltering and there are fears about rising consumer debt. If interest rates and mortgage rates start to rise, many people may be unable to afford repayments, with implications for house prices, the car market and banks’ health.
Of course, the doom-mongers could be wrong. Political and economic conditions might improve and financial markets might continue to rise. In the current market, however, investors would do well to hedge their bets – and gold is a neat way to do so.
For British investors, there is an added benefit to buying gold – it can help to offset sterling weakness. Gold is, in effect, a global currency so it moves up when domestic currencies lose value. Over the past year, for example, the dollar gold price has remained fairly static but the sterling price has risen more than 17 per cent.
Notably too, the global gold market has changed dramatically over the past 15 years, as Chinese and Indian consumers have become richer and developed a growing appetite for gold. China is now the biggest buyer of gold, closely followed by India – and demand is expected to increase steadily over the years as their economies grow.
So gold is a sensible long-term investment. It preserves wealth and is a smart way for investors to diversify assets. It is also easier than ever to buy, so much so that the options can be bewildering.
Exchange-traded funds are one possible avenue, but they tend to be an option for investors looking to make a quick buck by taking advantage of short-term price movements.
Long-term investors tend to prefer physical gold – either coins or bars – to hold at home or in a reputable vault. Physical gold has one key attribute – it is a tangible store of wealth, which can be preserved or sold whatever the external circumstances. Markets can be tumbling, wars can be erupting and banks can be collapsing, but physical gold remains a solid, accessible asset, whose value invariably rises as other assets fall.
UK-minted gold coins are also exempt from capital gains tax, because they are considered a form of currency. The most popular are Sovereigns, which cost about £240 and Britannia coins, costing around £1,000.
Gold bars are widely available too, from one ounce in weight – for around £1,000 – to 1 kilogram, for about £30,000. Bars of 12.5kg are also available, but they are more suited to big institutions than individual investors.
Physical gold can be bought in specialist shops, but it can easily be purchased online too, from the Royal Mint itself and other outlets such as Bullion by Post, Coininvest or The Pure Gold Company. Prices vary for coins, bars and storage, so it is worth checking each outlet.
Services vary too. The Pure Gold Company prides itself on offering individual advice, for example, which may be helpful to first-time buyers or investors wishing to make a substantial purchase. Gold can even be part of a self-invested pension and older investors are increasingly interested in apportioning part of their retirement pot to the yellow metal.
Midas verdict: The gold price fluctuates from day to day or year to year but over the long term it tends to hold its value like no other asset. In today’s world, that is no small achievement. Buy some and hold it.