With the risk of inflation and uncertainty that persists in the stock market, a number of risk-averse investors are seen flocking to a reliable asset with a proven track record of growth: gold.
That said, holding substantial amounts of physical gold can be quite an inconvenience. Luckily, there are various methods available for investors to tap into gold’s price fluctuations without the burden of physically holding it.
In this guide, we will explore the different ways you can invest in gold in the UK, practical tips for successful investing, the pros and cons of investing in the shiny mineral as well as suggestions on the best brokers to use.
Intermediate Traders and Investors
How to buy in gold in the UK: ways to invest
Investors in the UK have multiple options at their disposal for directly or indirectly investing in gold, including:
Gold has been a symbol of wealth and a store of value for centuries. As a precious metal with enduring appeal, it continues to captivate investors and collectors alike. When investing in physical gold, there are three primary forms to consider: bullion, coins, and jewelry.
- Gold bullion coins: Popular among British investors, the Britannia and the Sovereign coins (produced by the Royal Mint) are both considered legal tender and are exempt from capital gains tax and VAT when bought or sold;
- Gold bullion bars: Gold bars vary in weight, size, and purity (pure gold has a rating of 24 carats) and come stamped with a seal on the top;
- Gold jewelry: Gold jewelry can be worn and later sold when needed. It can also serve as a tangible store of value and be passed down through generations as an heirloom. However, remember that the price tag often includes a markup, accounting for labor, design, and retail margins, which can inflate the cost to as much as triple the actual value of the gold content.
Always opt for a reputable dealer (or buy directly from the Royal Mint) when purchasing gold. Additionally, remember to account for insurance and storage expenses.
Secure storage options include vaults, bank safety deposit boxes, or the Royal Mint’s vault, which charges an annual fee of 1% (plus VAT) based on the value of your stored gold. Alternatively, if you prefer keeping gold at home, consider investing in a high-security safe and ensuring proper insurance coverage.
What is numismatic value, and why does it matter?
Naturally, holding vast amounts of physical gold can be quite a hassle, and the security measures required to safeguard it from theft can be expensive. Luckily, there are various alternatives for gaining exposure to gold without needing to physically possess the valuable metal.
You can invest in gold CFDs, ETFs, or gold-related stocks through your online broker. First, let’s start with gold CFDs:
A CFD is a financial investment tied to an underlying asset, in this case, gold. Investors use CFDs to speculate on the asset’s price movements, employing either long or short positions, without actually owning the asset itself.
CFDs are traded on margin, which means brokers loan investors additional funds to enhance leverage or increase the size of their position, thereby amplifying potential gains. However, brokers will require that traders maintain specific account balances before permitting such transactions.
Beware of the risks of derivative financial instruments
If you prefer to avoid the complexities of owning physical gold or engaging with the fast-paced and margin-dependent derivatives market, a viable alternative is to invest in an exchange-traded fund (ETF) that tracks the commodity.
Three of the largest gold ETFs are SPDR Gold Shares (NYSE: GLD), iShares Gold Trust (NYSE: IAU), and Aberdeen Physical Gold Shares ETF (NYSE: SGOL).
ETFs offer exposure to gold’s price fluctuations, so the fund’s performance should generally mirror the rise or fall of gold’s value, excluding the fund’s annual fees. Although gold can be volatile, like stocks, investing in these ETFs allows you to sidestep the primary risks of owning physical gold, such as storing and insuring your gold, by entrusting most investment decision-making to a professional.
An alternative method for tapping into the gold market is investing in gold mining, refining, and trading firms. Some of the leading global gold mining players include Barrick Gold Corporation (NYSE: GOLD), Newmont Corporation (NYSE: NEM), and AngloGold Ashanti (NYSE: AU). Acquiring shares in these companies can provide you with exposure to the yellow metal.
Mining is primarily a fixed-cost operation. As a result, when gold prices increase, mining firms’ profitability rises, rewarding investors with higher share prices or beefier dividends.
However, while mining company share prices correlate with gold prices, they are also influenced by other factors such as profitability, geopolitical risks, and environmental concerns. Moreover, mining is a costly undertaking, often resulting in significant debt balances. In addition, when interest rates rise, the cost of servicing this debt increases, reducing shareholder earnings.
Consider gold-related ETFs
Where to buy gold in the UK?
If you don’t want to buy physical gold, you’ll need a brokerage account to buy gold stocks or funds or engage in gold CFD trading. While countless online platforms are available, the one that suits you will depend on your investment style (long-term buy-and-hold strategy or a more active swing or even day trading approach) and needs (e.g., whether you want to trade on margin).
Once your account is funded, you can choose the gold-related assets that align with your preferences and place the order through your broker’s website.
To securely buy gold in the UK, consider eToro, which offers:
- Commodities trading;
- CFDs trading;
- Commission-free stock trading;
- 3,000+ stocks from 17 exchanges;
- Fractional shares available;
- User-friendly platform.
Intermediate Traders and Investors
How to buy gold in the UK with eToro: Step-by-step
- Step 1: Create an eToro account and complete the verification process;
- Step 2: You have to fund your account before you can start buying gold. Several deposit methods will be available to you, including linking your bank account, using a debit or credit card, as well as employing third-party payment methods like PayPal, Neteller, or Skrill;
- Step 3: Navigate to the commodities markets page, choose ‘gold’ to access the gold trading dashboard, or visit the stocks or ETFs market and input the gold-related stock or ETF ticker symbol;
- Step 4: Click on BUY;
- Step 5: Input the desired cash amount or number of units for your trade;
- Step 6: Review and adjust the stop loss, leverage, and take profit settings;
- Step 7: Click ‘open trade.’
Is gold a good investment?
Whether gold is a good investment depends on your individual financial goals, risk tolerance, and investment horizon. That said, gold has historically been considered a safe-haven asset, often maintaining its value during periods of economic uncertainty and market volatility. In addition, it can diversify a portfolio, as it has exhibited a low correlation with other assets like stocks or bonds.
Furthermore, gold has traditionally been viewed as a safeguard against inflation, as it can preserve or even grow its value over time, even in the face of rising prices.
However, gold does not generate passive income, such as dividends or interest, and its long-term returns may not match those of more aggressive financial instruments, like stocks. Additionally, gold’s price can be volatile in the short term as various factors, such as economic conditions, political events, and investor sentiment, impact it.
So, as with any investment, it is essential to carefully consider your unique financial situation, objectives, and risk tolerance before investing in gold. Moreover, consulting with a financial advisor may help you make a more informed decision.
Gold price in the UK
Mistakes to avoid when investing in gold in the UK
Investors should be mindful of several common mistakes when investing in gold:
- Lack of diversification: Overexposure to gold can make your portfolio vulnerable to fluctuations in gold prices. Ensure a well-balanced and diversified portfolio that includes a variety of financial instruments such as stocks, bonds, and cash;
- Timing the market: Attempting to time the market to buy gold at its lowest price or sell at its highest can be challenging and often leads to missed opportunities or losses. Instead, consider a long-term investment strategy, such as dollar-cost averaging, to mitigate the impact of market volatility;
- Ignoring storage and insurance costs: Physical gold ownership requires secure storage and insurance, which can add to the overall cost of your investment. As a result, you might want to consider alternative investment options like gold ETFs, which do not require physical storage;
- Putting your money into investments you don’t fully grasp: It’s essential to research and understand the various gold investment options at your disposal. Furthermore, if you decide to invest in gold mining stocks, make sure to thoroughly examine the company’s fundamentals and potential geopolitical and environmental risks tied to its operations;
- Succumbing to high leverage: Engaging in gold trading through CFDs allows for the use of leverage, which can amplify your risk-return ratio. This approach is better suited for intermediate traders rather than beginners, as gold’s price can be pretty volatile;
- Falling for scams: Gold (as well as silver) have long served as avenues for scammers to trick unsuspecting victims into purchasing these minerals at exorbitant prices. A good resource for potential investors is the Commodity Futures Trading Commission (CFTC) and its guidelines for identifying potential scammers;
Pros and cons of investing in gold in the UK
Make sure to evaluate both the pros and cons of investing in gold before adding it to your portfolio.
- Diversification: Historically, gold has exhibited a low or even negative correlation with stocks and bonds, indicating its potential as an effective diversification instrument that can reduce overall portfolio risk;
- Hedge against inflation and currency risk: Gold may be more resilient to cash flow problems and currency devaluations compared to other asset classes;
- Safe-haven investment: During times of geopolitical turmoil or economic uncertainty, gold is often viewed as a safe-haven investment, as its value tends to remain more stable or even increase in such situations;
- Store of value: Gold has been used as a store of value for centuries, and it is generally expected to retain or grow its value over time, making it a stable investment option for long-term investors;
- Liquidity: Historically, the demand for gold has persisted even during times of economic stability. As a result, the process of purchasing and selling gold has become increasingly efficient.
- Price fluctuations: Gold prices can experience volatility and may witness significant changes over short timeframes. This unpredictability can make it challenging to determine its value, potentially making it a high-risk investment;
- Inflation risk: While some investors purchase gold as a protection against inflation, there’s no guarantee that gold prices will rise in tandem with inflation rates;
- Inferior returns: Although gold is known to be an effective store of value, making it an attractive option for investors hoping to preserve their wealth, the asset doesn’t produce any income or cash flow. Moreover, over extended periods, gold has substantially underperformed compared to the stock market;
- Political influences: Factors like wars, national elections, and shifts in government policies can impact gold prices;
- Storage and insurance expenses: Owning physical gold necessitates secure storage and insurance to safeguard against loss or damage, which can contribute to the overall cost of the investment.
In conclusion, investing in gold can offer a strategic opportunity for diversifying your portfolio and shielding your wealth during times of economic turbulence. Moreover, as a safe-haven asset and a hedge against inflation, gold has an established track record of holding its own in the long haul.
However, it is crucial to carefully evaluate your financial goals, risk appetite, and overall investment strategy before venturing into the gold market. At the end of the day, a well-diversified and balanced investment approach will be your golden ticket to long-term financial prosperity.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs about investing in gold in the UK
How to invest in gold in the UK?
In the UK, investing in gold can be done through options like gold ETFs, gold stocks, or trading gold CFDs. These financial instruments offer exposure to gold’s price fluctuations without requiring physical ownership of the precious metal, accommodating various risk appetites and growth prospects.
How to invest in gold stocks in the UK?
To invest in gold stocks in the UK, begin by opening an account with a regulated online broker. After setting up your account, you can select and buy gold stocks using the broker’s platform.
How to buy gold in the UK?
To buy gold in the UK, set up an account with a trustworthy online broker and buy shares of individual gold companies or invest in ETFs. Make sure you keep a close eye on your investments and make necessary adjustments to your portfolio over time.
Where to buy gold in the UK?
You can trade gold in the UK via regulated online brokerages overseen by the Financial Conduct Authority (FCA), like eToro. In addition, you can acquire physical gold from various dealers and banks, either online or in person. Investment-grade gold bullion coins and bars can also be acquired from the Royal Mint.
Is it worth investing in gold?
Whether investing in gold is worth it depends on your financial goals, risk tolerance, and investment portfolio. Gold is often regarded as a safe-haven asset and a hedge against inflation, which can help diversify your portfolio and protect your wealth during economic uncertainty. That said, it’s essential to carefully consider its advantages and disadvantages and consult with a financial advisor before making any investment decisions.