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How best to buy gold?

Investment | Commodities Helpful? 2

Asked by simplemoney, submitted 21 July 2011.

Open Quote I would like to take out a long-term investment. Maybe about 5 - 10 years.

I have £70,000 to invest.

I'm thinking about buying gold.

I can't afford to buy a gold bar, so I was thinking about buying gold coins.

How would I go about this ?

The only gold company I know of is Johnson Matthey.. I believe they are a bona fide company, so I've thought of buying through them.

What would you advise?
End Quote

Answered by Justin on 26 July 2011

If the £70,000 will represent most of all of your investment pot then I'd be very wary about putting it all into one type of investment. Spreading it across a range of investments should reduce risk, as if one investment bombs you won't lose your shirt.

As for gold, with global turmoil more likely to increase than decrease there is an argument that the price will rise further still. However, bear in mind that much of the recent price rise has been due to higher demand from investors rather than for jewellery (which normally accounts for the majority of demand). Jewellery demand will likely rise longer term as emerging markets grow, but if investors sell off shorter term then the price could fall quite sharply. The latter is unlikely to happen while markets are struggling, but is very likely once global economies are more settled again (which could be some years away). More info in my article here.

As for how to invest, buying physical gold coins or bars (they come in various sizes) is one route. Smaller coins and bars tend to sell for a premium to the actual gold price, plus you'll need to factor in costs for storage and insurance (it's generally not a good idea to store lots of gold at home). Nevertheless, it's a straightforward way to invest and provided you buy from an established dealer who certifies their coins/bars you should be fine. Or you could consider services like Bullionvault that store the gold for you (see my answer to this question).

A convenient alternative is to track the gold 'spot' price using exchange traded funds such as ETFS Physical Gold and Gold Bullion Securities (cost is about 0.4% a year plus stockbroker dealing fees to buy and sell (£10 or less online). These funds back your investment with gold bars, so should theoretically be safe. Or you could look at the Perth Mint Gold Certificate Program (see my review here).

A further option is to buy shares in gold mining companies, either directly or via an investment fund. Share prices tend to exacerbate gold price movements and there's operational risk too (e.g. the company might suffer production problems at one of its mines), so the risks tend to be higher.

Good luck whatever you decide.

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 (1) - To post a comment please register or login .

Comment by nathanl at 11:31am on 20 Apr 2012:

Sensible advice for diversification.

Should you do choose to hold some gold for it's "long term store of value" properties or as insurance against systemic "turbulence", then you should have physical possession of it.

In the UK buy Sovereigns or Britannia coins as these coins are technically legal tender and so are exempt from capital gains tax, be aware though if you sell at a loss you wont be able to claim a capital loss.

Expect to buy at about 3% over the current gold price. Expect to sell at 2 or 3% under the current price.

Don't purchase gold as a speculative investment.