Should you join the gold rush?
No, not out in Rio, but back at home where investors are pouring record amounts into the metal
SAVERS are rushing to put money into gold as fears grow over the state of the global economy.
Figures from investment brokers show the amount being pumped into gold investments this month is around three times as high as a year ago.
The World Gold Council says that demand hit record highs in the first half of 2016 — and the Royal Mint enjoyed a surge in customers when the Bank of England cut interest rates at the beginning of August.
Investors tend to flock to gold in times of uncertainty because it is seen as a safe haven that will hold its value. With stock markets and currency highly volatile, the Chinese economy slowing and falling interest rates making it harder to earn a return on cash, the gold price in pounds sterling has jumped 48 pc this year.
The successful RIT Capital Partners Trust, chaired by Lord Rothschild, has increased its investment in gold to £8 in every £100 due to falling interest rates and quantitative easing.
So is it wise to follow the herd into the yellow metal — or have you missed your chance?
Adrian Lowcock, of investment firm Architas, says: ‘Concern around the Brexit effect on Britain’s economy is easing off, but there are still a lot of problems facing the world.
‘You have struggling Italian banks, the devaluation of the Chinese Yuan, political uncertainty in France and Italy, and arguably in the U.S., too, with Donald Trump’s rise. So holding some gold is probably a good idea. I’d suggest about 5 pc of your portfolio, but not much more.’
Gold peaked at $1,837 (£1,120 at the time) an ounce in July 2011, before slumping to a recent low of $1,061 (£700 at the time) in December. But it has shot up more than a quarter since then, to $1,349 (£1,034) on Tuesday.
As sterling has fallen so sharply, the price of gold has shot up 48pc this year for British investors.
These wild swings mean you need to hold onto gold for the long term for it to be worthwhile.
Ben Yearsley, director at investment firm Wealth Club, says: ‘Gold should not be seen as a short-term punt, but rather a small part of a balanced portfolio of shares, bonds and cash.’
One way to buy into gold is through funds, which tend to invest in mining firms.
Darius McDermott, managing director of research firm FundCalibre, tips BlackRock Gold & General. While a £10,000 investment five years ago would be worth £8,090 today, it has risen 133 pc over the past year. Nearly half of the fund is invested in Canadian mining companies while around £12 in every £100 is in British miners such as Jersey-based Randgold Resources. Evy Hambro, the fund’s manager, says: ‘The value of gold depends on what happens to interest rates around the world. As long as other investments are unattractive, gold is going to do well. I think it’ll continue to perform strongly.’ You can buy shares directly in individual gold mining companies, but banking on the fortunes of just one firm is more risky than investing in many. An alternative is to put your money in something called an exchange-traded commodity. These investments track the price of commodities such as gold, silver and oil and are traded like shares on the stock market. There are two types: some invest in physical gold metal; others prefer to use complicated financial instruments, which are called derivatives, to copy its price. Ben SeagerScott, director at investment firm Tilney Best-invest, likes ETF Securities Physical Gold. A £10,000 investment has fallen to £9,670 in the past five years. But a 24.8pc growth spurt in the past six months means it has gone some way to recovering its costs. One reason savers opt for an exchange-traded commodity is that it mirrors the gold price, rather than the success of miners. Another is that they’re cheaper. For example, the annual charge on BlackRock Gold & General is 1.75pc, compared with 0.39pc on ETF Securities Physical Gold. You can also buy a lump of the shiny yellow metal. Merchants such as ATS Bullion, Sharps Pixley and online firms such as BullionVault and GoldMade Simple all sell gold coins and bullion bars. What’s more, gold Britannia and sovereign coins are not subject to capital gains tax when sold, though bullion bars are.
As a guide to prices, ATS Bullion was selling gold half-sovereign coins from £135 and 1g bars from £48 on Tuesday.
A 100g bar will set you back more than £3,400. But shop around for the best deals.
You can keep your gold at home, but it’s safer to store it in a vault. This normally costs around 1 pc of the value of your investment plus VAT. So £1,000 of gold would cost £12 a year to store.
If you don’t want to buy a whole bullion bar, the Royal Mint sells fractions of a bar for as little as £20 via its Signature Gold service. You can specify how much you own down to 0.001 ounce.
The 1,000-year-old coinmaker stores the gold in its vaults in Llantrisant, South Wales, for 0.5pc plus VAT, based on the average daily value of your investment.
So it would cost around £30 to store £5,000 of gold for a year. It costs 1 pc to sell it back to Royal Mint, or £10 for each £1,000.
In June, the Royal Mint started letting savers buy and store its gold in their pension pots.