Should experienced investors buy gold or look elsewhere?

04-06-18
Should professional investors invest in gold? Is gold a good inflation hedge for the experienced investor? Is investing in gold losing its sparkle? Is CGT payable on gold sovereigns? Should a professional invest in gold to balance his portfolio? Does gold offer a return? Is the price of gold driven more by fear than fundamentals?

Investors, both experienced and amateur, have always looked to gold in times of uncertainty and depending on your timing this has proved to be a very wise investment in the long term. But is gold in the current era losing its sparkle?

What to buy?

Investment in gold is available is several forms the most obvious of which is of course to buy bullion itself or coins and even jewellery. But there are alternatives! You could invest in an ETF that is backed by physical gold or perhaps buy shares in a gold mining company.

Which should I do?

Well that really comes down to a question of taste or preference. There are, however, some important things to remember. When you buy shares in a gold mining company, the price you pay for a share is driven largely by fundamentals – future price/earnings ratios etc. This is not the case with physical gold. There is no real or precise way to value gold bullion and in fact I suspect that at times its value is driven more by fear than fundamentals! 

Also you have to take into account the bid and offer spread when buying physical gold. Typically because of this you will pay a premium to the spot price on purchase and you will lose a little on sale.

Other downsides…

Just like cash, gold offers not return – there is no income from it or dividend. Unlike cash, however, you do have to pay capital gains on any appreciation in value, unless of course you buy the Gold Sovereign which is considered by HMRC to be currency and thus free from CGT.

An experienced or even professional investor would be crazy to invest in gold bullion without the appropriate storage and insurance but this too does not come without cost. Gold coins are one thing because they are much smaller but a bullion investor might feel uncomfortable storing gold bars in his home and thus may require a safe deposit box for safe keeping!

Then why should an experienced investor buy gold?

Every investor knows that over time money buys less and less as its value is eroded by inflation. An investment in gold, however, offers not only a diversification of your portfolio but at the same time a very efficient hedge against inflation. This is why gold is often considered to be the perfect investment in times of market, political or economic uncertainty! 

Even allowing for the premium you might have to pay and the annual costs of insurance and storage, gold has certainly more than beaten inflation over the past twenty years, if not longer.

So in conclusion…

The experienced or professional investor will already know the benefits of investing in gold. Certainly the price can be volatile but its advantages as part of any balanced investment portfolio and its inherent inflation hedging properties will always make it a popular investment.

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About the author

Phil Blackett

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I am an entrepreneurial retailer and wholesaler with a strong track record of achievement and success in E-Commerce within a B2C environment.

For over 30 years I have successfully founded, created and operated businesses within Men’s High St retail and online optical. I’ve built successful, high-performing teams – both technical and non-technical and always enjoyed developing profitable, long-term relationships with clients. 

It hasn’t all been plain sailing. I’ve learnt some hard lessons along the way that have shaped my ‘people first’ approach. I have a laser focus when it comes to margin, I believe profit tops turnover, cash is king and putting the customer first builds the right reputation. I’ve worked extensively with clients and suppliers all across the globe – giving me a truly international perspective in understanding cultural nuance and sensitivity.

By the very nature of my career to date, I have a very broad business experience and perspective. From developing international supply chains, merchandising and store design to raising VC funding, negotiating with banks and property agents and building high performance E-commerce sites – I believe I can bring value and insight to solve a broad range of business challenges.

Throughout my business career hindsight would have been a wonderful thing. I feel that I’m now able to share my knowledge and experience with others and help them avoid pitfalls and overcome the challenges that I’ve faced over a thirty-year career. In addition I believe my e-commerce knowledge and experience is very much at the cutting edge – enabling me to not only support ‘traditional’ small business – but also add value to those looking to establish themselves in the digital economy.

Additional Skills

E-commerce business seeding and transformation

I am also a Director of London Gold Bullion.

https://www.londongoldbullion.co.uk

 

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