Investors typically flock to gold during times of heightened geopolitical tensions and uncertainty. Sure enough, this has been the case since Russia’s invasion of Ukraine more than two-and-a-half years ago and Hamas’s terror attacks on Israel last October sparked a wider conflict that today risks engulfing the Middle East.
The gold price stands close to a record high at $2,657 (£2,032) per ounce, buoyed by strong investor demand, its limited supply and perception as a store of value in times of turmoil.
The value of the precious metal tends to behave differently to shares and bonds, which can come in handy during a market sell-off.
Investors in gold have seen their holding grow in value by 42 per cent over the past 12 months. This is even greater than the 33 per cent return that investors in the S&P 500 index of the largest US companies enjoyed over the same period.
‘All investors should have an allocation to gold, be that in coins, exchange-traded funds (ETFs) or mining company shares,’ says
Investors in gold have seen their holding grow in value by 42 per cent over the past 12 months
Tom Becket of Canaccord Genuity Wealth Management. ‘Gold remains the asset of choice for anyone who shares the same scepticism we have for elected governments of the world.’
Coins are safe from a Budget raid on CGT
Closer to home, bullion coins may appeal for a different reason. Profits made from the sale of gold sovereigns, gold Britannia coins and silver Britannia coins (amongst others) are exempt from capital gains tax (CGT) because of their status as British currency.
This is particularly attractive ahead of Labour’s first autumn Budget, which Premier Keir Starmer has said will be ‘painful’.
Labour has promised not to raise income tax, National Insurance or VAT, so hikes on inheritance tax and CGT – a tax on profits made from second house sales and investments – are anticipated.
You currently pay CGT if you make a profit greater than £3,000 from selling assets that are not sheltered inside a tax-free wrapper such as a pension or Isa.
Property is subject to the tax, unless it’s your first home.
The tax is charged at 18 per cent on residential property and 10 per cent on other assets if you’re a basic rate taxpayer, and 24 and 20 per cent respectively if you’re a higher or additional rate taxpayer.
Chancellor Rachel Reeves could decide to hike CGT to the same level as income tax – a move that has been called for by think-tank the Institute For Public Policy Research (IPPR) and the now defunct Office of Tax Simplification in a major report in 2020.
Major accountancy firm BDO warned last week that as ‘capital gains tax rates are at historic lows, increasing them seems a likely option’.
Gold’s set to shine as a safe haven asset
So, is it a good time to buy gold? First, it is worth thinking about why the price has reached fresh highs and where it is likely to go.
Investors have turned to gold at a time of heightened geopolitical tensions but, elsewhere, emerging market central banks and sovereign wealth funds have also bought record amounts of the precious metal.
They have done this to diversify their reserves away from dollars and US government debt.
China, India and Turkey feature among the top buyers of gold bars and coins so far in 2024.
Chancellor Rachel Reeves could decide to hike capital gains tax to the same level as income tax
‘The question is will we continue to see central banks from emerging market countries continuing to buy gold as they have done over the past 18 months?’ says Jason Hollands of wealth manager Evelyn Partners.
‘There is nothing to indicate they are going to take their foot off the accelerator.’ The gold price may also benefit from any further interest rate cuts in the US, UK and Europe.
That is because gold does not pay an income so investors who hold it miss out badly when interest rates are high and they could earn a nice yield from holding bonds and cash, but forfeit less by holding it when the yield they could earn is lower.
Finally, gold is viewed as a store of value during times of uncertainty.
With no resolution in sight in Ukraine or the Middle East, gold is likely to retain its shine as a so-called safe haven asset.
It can rebound from any dips in the price
Many experts expect the price can continue to rise even from today’s elevated level.
But they warn of dips along the way, particularly if investors choose to take profits on their gold investments.
Philip Newman, managing director of consultancy Metals Focus, explains: ‘Although we are bullish on gold, there will be volatility and investors taking profits.
‘There is potential for the gold price to fall $100 dollars or more, it could even go down to $2,500.’
However, he suspects a fall in the gold price won’t prove long-lived due to the number of investors on the sidelines who are waiting to buy in at a lower price.
It’s easy to buy coins at shops or online
You must decide if you want to own physical gold directly via coins or bars.
Alternatively, you can invest through an Exchange-Traded Fund or mining shares.
If you want to own gold directly, the main options are coins, bars or ‘DigiGold’, which are fractional quantities of a gold bar that can be purchased and stored at the Royal Mint.
For example, investors can spend as little as £25 to buy a fraction of a gold bar.
The big attraction of gold coins over bars and DigiGold is they are exempt from capital gains tax, although all three are VAT-free.
Gold coins are likely to appeal most to those who are investing outside of an Isa or pension. That is because investments in gold in any form – even shares or funds – will not attract capital gains tax if you hold them within these tax wrappers.
The gold price stands close to a record high at $2,657 (£2,032) per ounce, buoyed by strong investor demand
It is relatively easy to buy gold coins via the Royal Mint or an independent broker.
Some brokers have shops while others operate solely online. They include Atkinsons, Sharps Pixley, BullionByPost and Chards.
You will pay a premium above the gold spot price because of the design and manufacturing costs involved to mint the coins.
This means you are effectively getting less gold for your money compared to a gold bar. For example, a one ounce gold Britannia 2025 coin is currently priced at £2,145, which is around six per cent higher than the gold spot price, while in some instances a pre-owned one ounce Britannia coin can be four per cent higher.
Storage costs will eat into your sale profit
If you decide to buy a significant amount of coins, you will need to think about where you want to store them.
Whether in a safe at home or a vault provided by the Royal Mint or a broker, there will be costs involved. Storage fees at the Royal Mint range from one to two per cent a year plus VAT, based on the value of the coins.
These costs are typically lower at the larger brokers. For example, Chards charges 0.5 per cent per annum plus VAT, while BullionByPost takes 0.65 per cent plus VAT, with the first six months free of charge if you store more than £2,500 of items.
If you keep coins at home, you will need a safety box and to check whether your contents insurance covers gold bullion.
Insurer Admiral said storing upwards of £100,000 of gold bullion coins at home would be over its limits for a household policy. In which case a specialist policy would be required. Be prepared for higher insurance costs.
It is also worth noting that these extra costs eat into the amount of money you ultimately make if you sell the coins at a profit.
Coins can be sold back at near market value
Mainstream coins, such as Britannias and Sovereigns, can be sold back to the Royal Mint or any of the larger brokers, relatively easily.
Depending on the condition, they will typically buy them back at around 98 to 99 per cent of their market value.
You will need to allow time for the broker to carry out checks on you and the coins before a sale is completed.
Ian Chard, chief operations officer at broker Chards, says: ‘Stick with tried and tested popular products. If it is purely about cheap entry and a decent exit, there is good value on both sides of the trade. Stick with one ounce coins, which is where the biggest market resides.’
You don’t need to hold gold in your hands
If you have a pension or Isa, there will be less of an incentive to buy gold coins because any gains you make on your gold investments are free from capital gains tax anyway. Unless you have a strong desire to own gold directly, it could make more sense to buy an exchange-traded commodity (ETC).
These are traded on the stock exchange, aim to closely track the gold price and are backed by physical gold that is owned in a vault.
You can hold them in an Isa or self-invested personal pension (SIPP). Gold-backed ETCs allow investors to generally track the price of the precious metal, giving them access to the properties and tangibility of owning physical gold without the need to arrange for storage and insurance separately.
These gold-backed funds seek to combine the flexibility and ease of stock market trading with the benefits of physical gold ownership. There are a number of benefits associated with ETCs.
You can invest smaller sums, as well as trading in and out easily and quickly.
Also, there are less costs involved as you are not buying in above the gold spot price and you do not have to pay for storage or insurance.
Lynn Hutchinson of wealth manager Charles Stanley highlights iShares Physical Gold ETC as one to consider. It has a low annual charge of 0.12 per cent and is $17 billion in size.
Meanwhile, Hollands at Evelyn Partners mentions the $18 b illion Invesco Physical Gold ETC. It also has a 0.12 per cent charge.
Another option is to buy gold mining shares either directly or via a fund. So far they have lagged the gold price but Cannacord’s Becket suspects things could soon improve.
‘Gold mining companies can continue to benefit from the elevated gold price and their margins should be less pressured because inflation is coming down,’ he says.
Bear in mind, these are ‘actively managed’ funds, so they will have a higher charge than an ETC. Becket likes the £987 million BlackRock Gold and General fund, which has an ongoing charge of 1.2 per cent.
It’s worth waiting for a dip in price to buy in
There are plenty of reasons to hold gold in your portfolio now, not least the uncertainty created by the conflicts in Ukraine and the Middle East.
Experts typically suggest it can make sense to hold up to five per cent of your portfolio in the
precious metal, particularly as it tends to behave differently to shares and bonds.
While gold bullion coins can provide a neat way to dodge a potential incoming capital gains tax hike, it would only make sense to hold them outside of an Isa or pension.
Alternatively, you may be drawn to them because you have a strong desire to own physical gold.
It is worth thinking about your entry point, given the gold price is close to an all-time high.
The only way to make money on gold is by selling out at a higher price, so it could be worth waiting for a dip in the price to buy in.
The big gains of the past year and a half are unlikely to be repeated.
