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Good way to invest in gold and silver?

Investment | Commodities Helpful? 4

Asked by dhariwaln, submitted 23 April 2011.

Open Quote I would like to invest in gold and silver as part of a diversified portfolio.I already hold Blackrock Gold and General, JPM Natural resources, Blackrock World Mining and City Natural Resources Investment Trust. seems to be popular as is ETF Physical gold and silver.What are your views regarding costs and future growth in these two vehicles. How would you invest in Gold and Silver?End Quote

Answered by Justin on 27 April 2011

Using an exchange traded fund (ETF) is a straightforward way to track the (spot) price of metals like gold and silver. The main things to look out for are whether the fund is backed by physical metal (rather than bits of paper, which could prove worthless if the bank 'guaranteeing' them goes bust) and charges.

The ETF Securities Physical Gold and Silver ETFs score pretty well on both counts, annual charges are 0.39% and 0.49% respectively and they're backed by allocated physical metal held by custodian HSBC. You can also buy versions traded in pounds, which are likely to be more convenient, although you'll still face currency risk as the underlying metals are traded in US dollars (e.g. if the pound strengthens against the dollar and the gold price is static you'll lose money due to the exchange rate movement).

I haven't used Bullionvault but they appear to offer a sensible, low cost, way to buy and store physical gold. For investments of up to $30,000 there's a 0.8% fee to buy and sell and a 0.01% monthly storage fee (min $4). This will probably prove a bit more expensive than the Physical Gold ETF, where stock broker dealing fees should be £10 or less - for example, on a £10,000 investment Bullionvault would cost around £80 to buy and £30 a year compared to around £10 and £39 for the ETF.

A small word of warning, neither Bullionvault or the ETFs will be covered by the Financial Services Compensation Scheme (FSCS) in the unlikely event something untoward should happen.

As for future growth potential, over the next 10-20 years I think it's good thanks to growing emerging markets demand. But shorter term is very difficult to predict. Much of the recent rise has been due to investors piling in rather than an upturn in gold jewellery demand, so if a number of those investors decide to sell we could see the gold price fall. Although if global uncertainty and turmoil continues then more investors might jump on the bandwagon and push up prices further still - take a look at my article here for more on this.

Given you already have quite a lot of metals exposure via your existing funds, I'd be inclined to hold off increasing your stake unless you really are optimistic prices will rise further or you're happy to ride out potential short term fluctuations and hold long term.

Also bear in mind that your existing funds generally invest in mining companies, whose share price movements tend to exacerbate underlying commodity price movements - great if prices are rising but more painful when they fall. This isn't necessarily a bad thing, just something to be aware of.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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Readers' Comments (2) - To post a comment please register or login .

Comment by dhariwaln at 3:13pm on 27 Apr 2011:

Thank you Justin.As always,to the point,very helpful.

Comment by pvcdoc at 2:11pm on 29 Apr 2011:

For completeness, there are also ETFs which track the spot prices of a basket of precious metals, such as PHPM.LSE.