How to invest in gold

By Scott Bryan

Gold is a precious metal that fluctuates in value but has always proved popular with numerous investors both private and institutional. Reasons for its popularity include the fact that it is quick and easy to cash in to generate liquid funds and, potentially, makes an excellent counterbalance for the riskier investments someone may hold so provides further diversification.
There are a number of ways to invest in gold some of which are covered below: -

Gold Bullion

Bullion, which is a tangible asset, can be purchased in various forms such as jewellery, sovereigns or gold bars coming in various sizes. Bullion can be stored at home, at a bank or a bullion centre. If a person’s finances cannot stretch to buying a gold bar it is possible to purchase units of gold with one unit representing one gram. Sovereigns and Krugerrands can also have a value as a collector’s item as well as the worth of the gold.

Gold Shares

It is possible to purchase individual shares in companies that either mine or trade in gold but these should be viewed just like any other share purchase in so much as they should be a part of a person’s share portfolio to provide diversification thus spreading the investor’s risk. As a general rule, shares in companies involved in gold mining or trading tend to be more volatile than the price of gold.
Also it is worth noting that such shares do not necessarily change in value just because the price of gold moves in value. For instance, during the crisis in the banking industry back in 2008, the gold price rose but shares in companies connected with gold dropped as did the rest of the stock market.

Gold Unit Trusts and Investment Trusts

There are not many unit or investment trusts available that purely enable the investor to place some of their funds specifically in the likes of gold mining companies’ shares. However, there are a number of general commodity funds that contain some gold related shares.

Gold Exchange-Traded Funds

Exchange-traded funds enable someone to invest in a commodity such as oil or gold but the investor would not physically own any gold. Exchange-traded funds track the gold price and can be traded through a stockbroker on a stock market. It is simple to buy and sell them and they can be held under tax efficient vehicles such as a SIPP or an ISA.

However, they are not tracker funds - they are individual companies and are traded as such just like someone would do if they were purchasing a company’s shares in the FTSE 100. Also, exchange-traded funds are not administered by a fund manager and, therefore, are not subject to the same level of management fees as an actively managed fund.

Conclusion

In an economic crisis, gold tends to be retained by countries to provide financial security and, therefore, rises in value. It is felt to be an excellent addition to an investment portfolio to provide that extra level of diversification.

Written by
Scott Bryan is a financial blogger who enjoys explaining the arcane world of finance in everyday terms. Formerly a high street bank manager for over thirty years, he knows that everyone has unique requirements and so is dedicate to helping you find the right solution for you. He now works as an freelance financial writer when not consulting for Profile investment portfolio management software