Gold Bullion
Bullion is a standard form of gold, with a recognised purity and weight. It can be bought as bullion bars or bullion coins, though the purchaser will pay a small premium over the cash price of gold on the international gold markets.
Physical Gold Vaults
Gold Bullion – Basics
Gold bullion bars are the most common way of investing in bullion, and the standard investment size bar is the London Good Delivery (LGD) bar. These are the bars that most people associate with gold investment: the ones that are kept in vaults at places like Fort Knox and immortalised in films such as The Italian Job and Goldfinger.
At around 400 troy ounces of gold, however, LGD bars are a little out of the reach of the smaller, private investor. So to cater to this demand, there are smaller standard bars of 99.5% pure gold. These come in sizes ranging from 1 ounce to 100 ounces.
A note to beginners – bullion coins and bars are produced for their gold content alone, and do not have any real value over and above this. Collectible gold coins, on the other hand, will be valued according to factors such as rarity and condition as well as weight and purity of gold.
Genuine Gold Bars
All bullion bars come stamped with a serial number, the mark of the refiner, confirmation of purity, and commonly the year of manufacture. Often a certificate confirming these details will accompany the gold bullion. Investors should never buy bullion bars that do not conform to these basic standards.
How to Buy Gold Bullion
Bars and coins are now available from a wide range of outlets. Increasingly over the last few years, bars have been produced to be sold by banks for investment purposes. The London Bullion Market Association produces a list of accredited gold bar manufacturers’ names those producers whose bars are recognised as being produced to investment grade standard.
An investor can buy gold in the form of bullion from national mints, accredited dealers of national mints, or international gold dealers. Increasingly, these international gold dealers are to be found online, and part of the explosion in the gold market has been encouraged by the new accessibility to gold that the internet has fostered.
A warning – Many investors also now buy gold from auction sites such as eBay. However, whilst the premium to do so may be temptingly small, buying from sellers on such sites requires extra caution. There are many counterfeiters who use the web to sell gold that falls short of investment grade – perhaps not even gold at all – and then disappear when the sale proceeds have been banked.
Choosing a Dealer
As with any big ticket purchase, it is important to ensure that you select the right source of your gold. You should always make sure that the dealer or broker you use has a good reputation.
The World Gold Council produces a list of gold dealers in over 25 countries that might help you to choose a dealer. This list is customisable, and the results are viewable as you drill down using selection criteria that includes the country where you wish to purchase, the type of gold you want to invest in and the services that the dealer provides. Importantly, these dealers have not paid to be included on the list, though they do have to pass an application process.
Similarly, if you wish to deal online and internationally, then the selection criteria will be almost identical. Of course cost is a factor – particularly premiums charged and postage if accepting physical delivery – but other areas to bear in mind is the level of service you require and the product range available. Does the dealer offer the bullion product you want? Does he offer delivery and/ or storage facilities? What about insurance, and customer service facilities? You should make a list of what you want your broker/ dealer to offer, and then research accordingly.
Bullion Storage Options
If you buy gold bullion and accept delivery, then you will need to store that gold. This might be in the home, in a safe for example, or in the vault or safety deposit box of a bank or dedicated gold storage facility.
Storing your gold incurs costs that need to be considered. There will be the cost of the safe, and installation, and then there’s insurance to think about. There will also be transportation or postage costs upon purchase and sale.
If you use a safety deposit box, then you’ll be subject to transportation costs and the risk of transporting your gold (theft or loss), as well as a rental fee perhaps in the hundreds each year.
As can be seen, there are many problems associated with taking physical delivery of gold and then self–storage. This is why buyers are increasingly using dealers that offer their own storage facilities, which are often cheaper than available to a retail investor because such dealers pass on to their customers the institutional storage rates that they pay.
Dealers which Store Gold on your Behalf
For the investor who wishes to buy through a dealer that stores his gold for him, such dealers offer two types of account.
The first of these is the unallocated account. Within this category there are two sub-categories, one where the gold you have bought is pooled with the gold of other investors. In such an account the investment is backed by the physical gold, though that gold is not held in the investor’s name but rather for ‘his benefit’, but he will be charged storage costs.
The other type of unallocated account allows the dealer to use the gold for other purposes, such as lending to gold bar manufacturers. It would not be typical practice to be charged for storage in such an account as this.
Then there is the allocated account, where the gold the investor has bought is held separately and in his name. He will have the gold certificated number, serial number, weight and purity assigned to his account. If an investor were to visit the storage facility and held this type of account, he could walk up to the dealer’s gold and pick out his actual bullion bar. Storage would be charged, and may be a little higher than for unallocated account holders, but still cheaper than the charges levied by a bank for a single account holder.
Selling Gold Bullion
When it comes to selling, an investor has to remember that to do so will also incur charges. The price received will suffer a discount from the cash gold price, in the same way that he was charged a premium when he first bought his gold. Then there will be postage or transportation costs, and perhaps even other brokerage fees.
The investor who has bought online through a recognised and reputable dealer, and then has used its storage facilities, will usually find that selling his gold is as easy as buying in the first instance. There will still be a discount to the cash price, but there will not be physical delivery charges to pay and storage costs disappear when the gold is sold.
Bullion Conclusion
Whatever your preference for gold bullion investment, whether coins or bars, whether direct dealership, remote, or online, the most important thing to remember is to research the prospective dealer thoroughly before making your final decision. Making a list of your selection criteria will help in this process, as will internet searches and speaking to other investors and even the dealers themselves.
Being aware of the problems and costs involved with bullion purchase, storage, and sale will also focus your mind. This will ensure that you are not only aware of the real costs of investing in bullion, but also the profit potential.
Remember to make sure your bars are the genuine article, with all the necessary stamped markings, and keep all certification documentation. Just like antiques or memorabilia is easier to sell with provenance, so too is gold.
Going through this whole process in a structured manner will help you to select the right investment for you, and the dealer best positioned to work with. And as the relationship with your dealer is likely to be a long one, the importance of this cannot be underestimated.
Investing in Gold Coins
Many investors in gold also choose coins. The reasons for doing so range from investing for the exposure to the price of gold to collecting purely for aesthetic quality; in other words, investment is a choice between bullion coins and numismatic coins. Bullion coin investors would argue that numismatic coins are less of an investment into gold than into the coin itself, as the value of such collectors coins are based more upon the quality, rarity and history of the coin than its gold value.
It is true that the value of bullion coins is based upon the gold content, but they will also be affected by the quality, for the determination of which there are grading scales. Whilst numismatic coins are a valid investment option and bullion gives a direct exposure to the gold price, for those investors that want the best of both worlds, then certain gold coins may satisfy that need.
What gold coins should you invest in?
There are many manufacturers of gold coins, including private mints such as The Franklin Mint that produce special collector coins and medals. However, such private companies tend to produce coins from lower grade gold, or from alloys or material mixes, or perhaps gilded coins. The price history of such products does not make good reading, and so serious investors tend to invest in coins that are produced by national mints.
Such coins include the Royal Canadian Mint’s Maple Leaf, the US Mint’s Buffalo Gold Bullion Coins and American Eagles, and the Kangaroo Gold Coin series from the Perth Mint. One of the most popular gold coins is the Krugerrand, produced by the South African Mint in large numbers and sold at a small premium over the spot gold price. All of these coins give direct exposure to gold, but for UK investors perhaps the best choice are the gold coins produced by the Royal Mint.
The Royal Mint gold coins – the Gold Sovereign, Half Sovereign, and Gold Britannia Coins – are particularly relevant for today’s UK resident investor because any gains made from buying and selling them are exempted from capital gains tax.
Royal Mint Gold Coins
Apart from the CGT benefit, the Royal Mint produces its coins for special occasions, such as the Queen’s Diamond Jubilee, for example, and also mint in a variety of sizes. These coins gain their CGT exempt status because they are classed as legal tender, though you probably wouldn’t want to spend a 2012 Sovereign Brilliant Uncirculated £5 Gold coin in your local corner shop: the legal tender value is, as implied by the name, £5, but the cost to buy from the Royal Mint is around £2400.
These minted coins are produced in limited numbers, which helps to keep values high, and the Royal Mint has been producing sovereigns for hundreds of years. It is reckoned, however, that less than one per cent of historic gold sovereigns are in an uncirculated condition, so if you are the lucky owner of one of those then you will have something very valuable indeed.
Another attraction for the small investor is that such coins are available in different sizes, and so investment can be made with just a few hundred pounds.
They are easily stored and great conversation pieces. And finally, they are not only exempt from CGT, they are also exempt from VAT.
Where can you buy Sovereigns, Half Sovereigns, and Gold Britannia Coins?
New gold sovereigns can be bought direct from the Royal Mint, and this is probably the best way of doing so. However, gold dealers will try to buy such coins and then offer for sale direct to the public. In such instances the normal rules of buying coins should be observed: do your research and trade with a dealer who has a good reputation, and don’t be afraid to shop around.
Older sovereigns tend to trade relatively close to bullion value, and many dealers, such as bullionbypost.co.uk, will give a discount for volume orders. Other dealers that will buy and sell these CGT free coins include goldinvestments.co.uk, Allgoldcoins.co.uk, GoldMadeSimple.com, and Chards.co.uk.
5 Tips when buying
- Always deal with a dealer who has a good reputation;
- Compare prices between dealers for the product you are buying;
- Factor in other costs, such as the cost of delivery (postage) and insurance cost required;
- Always buy the highest grade coin that you can;
- Store your coin properly to preserve its quality and value
Why invest in Gold sovereigns?
An investment in a gold sovereign, half sovereign, or gold Britannia coin, is an investment in not only gold, but the history of Britain. It is an investment that offers the best of both worlds: direct exposure to the spot gold price, but at the same time a numismatic collectible. In this way, it gives you a double chance for profit over the long term.
Even though these coins are minted in limited quantities (some would argue because of), the demand for them is mostly high and so you will be buying gold in a liquid market. This means that your coin should be easily sold at a good price when you wish to sell.
Part of the reason for this liquidity is that there is no VAT to pay on purchase, but more importantly no CGT liability on sale. This means that investors can maximise gains through diversifying their gold holdings into Royal Minty Sovereigns, and avoid tax of up to 40% on gains over the CGT allowance (which in 2012/ 13 was only £10,100).
Finally, they are small and easily stored, unlike some other alternative investments.
For the UK investor who wishes to own physical gold, a collection of gold sovereigns should form a part of his portfolio.
How to Compare and Select a Provider
To buy and sell gold, it’s important to have access to a dealer that is right for you. There are many different criteria to use when selecting your dealer, and the importance placed on each will depend upon your individual circumstances. For example, do you want a wide range of products, or are you only concerned about trading bullion at the best possible price? Will you require physical delivery of your gold, or do you prefer to store in an allocated account for ease and convenience?
There are so many gold dealers available on the high street that it would be impossible to review every single one, and if buying or selling gold through an individual behind a counter is what your circumstances desire, then we would recommend you conduct your own research into your local brokers before doing so.
Here we look at some of the options open to you in today’s market for those investors wishing to trade online. Some of these dealers have been established for a long time, whilst others have risen up the ranks in a relatively short period.
Range of Products
There are several dealers who offer a range of products. Tax Free Gold offer a wide range, from bars, coins from around the world, and CGT free products, as do Bullion By Post. The largest range of products, though, is offered by the oldest established firm that we looked at, Baird and Co, who extend their products out to include rings and certain jewellery.
Meanwhile, the narrowest ranges are offered by BullionVault and GoldMoney, both relatively new dealers who deal exclusively in gold bullion investment.
Hours of Service
Tax Free Gold allows customers into its premises in Blackpool during business hours of 10am to 5pm, but only by appointment. Registered users of its site have the same business hours in which to conduct any buying and selling of gold. Baird and Co offer similar trading hours, whilst BullionVault and GoldMoney operate 24 hours per day.
Margins
Whilst margins on gold are only part of the pricing conundrum, they are a major part. Some dealers make their margins known in an open manner, whilst others hide behind the spread of price. For example, on the day we compared gold prices, we looked at the £ price of a gram of gold. GoldMoney were offering a gram at £34.60, £20 cheaper than Tax Free Gold, the most expensive at £54. In fact Tax Free Gold’s premiums are up to 50% on smaller gold purchases. However, GoldMoney does allow dealing in nine currencies, where most others only allow a maximum of three currencies (Sterling, Dollars, and Euros).
Bullion By Post’s cost on a 1 gram was a middle of the road £43.
BullionVault allows customers to interact on its screen dealing system, and this brings spreads seriously lower. In fact, the average spread on the screen for its bullion gold was just $5 between bid and offer, or 0.15% either side of the spot price of gold.
Postage Costs
For those that want gold delivered for self-storage, Bullion By Post offer next day delivery at no cost within the UK. That’s an unbeatable offer.
Tax Free Gold offers delivery at £8, while Baird and Co’s charges range between £7.50 and £25 depending upon the amount of gold bought.
BullionVault and GoldMoney will deliver gold, but both aim their offerings at those investors who wish to store their gold with the dealer.
Storage Costs
Most of the dealers discussed offer allocated accounts – where gold is kept in safe storage in named accounts – though fee levels differ markedly. Baird and Co offer an allocated account with what it terms a ‘small charge’. This charge works out at £60 per kilo per annum, with a minimum of £175 per annum. Compare that with the 0.18% per annum charge levied by GoldMoney and it works out about the same, though the minimum rate with GoldMoney is only around £64. As a kilo of gold currently costs around £34,000, then for smaller investors GoldMoney is the cheaper option.
The cheapest allocated account, however, is found at BullionVault, which has a charge of 0.12% per annum, with a minimum of $4 (around £2.50) per month.
Website
The quality of websites varies considerably. The Tax Free Gold site has a huge amount of information about individual products, the gold market, and gold history, but is difficult to navigate and looks almost as if it has been printed on an exercise book.
Baird and Co’s site is more upmarket, with a black background and a simple navigation bar. The information about the company and its products is easy to get to, and is written in plain English. It is a site that will appeal to many, but particularly customers of a certain age.
GoldMoney is a site made for easy purchase of investment gold. Prices can be easily displayed in the currency of choice, and one-click dealing allows almost immediate dealing into your account. Sales of gold, however, have to be made from your account screen.
BullionVault’s site and dealing screen is made for those that actively deal in gold. Not only can a one-click trade be executed, but dealers can actively participate in forming the price by entering buy and sell orders, too. This is the reason that margins are so low at the company. The screen makes you feel like you are part of the market itself, with price changes occurring real time.
Overall
There are pros and cons to all the dealers that we have looked at here. If you want to choose a dealer with the longest track record and a wide range of products, then Baird and Co might be favourite. At the other end of the scale, if you want the excitement of entering your own orders in an active gold market with very low storage costs, then you might decide to open an account with BullionVault.
We’ve only discussed a few of the factors that might help make your mind up. Service levels, online help, and speed of payment might be other things you want to consider before taking the plunge. During the course of your own research into the gold dealers that would you’re your investment style best, remember this: they want your business. Why not open an account – free and with no need to fund – and start your research by gaining full access to each dealer’s offering, without obligation?
The Bottom Line
Whatever your investment preference, your profit will be determined not just by the purchase and sale price, but also by costs and taxes.
Costs to factor into your calculations would include dealing charges (eg broker fees), mailing costs (if dealing in physical gold online, for example), and storage fees (levied by banks for deposit boxes or dealers that store your gold for you).
Taxes that might affect your final return vary from country to country, but might include VAT, income taxes, and capital gains tax.
Overall gold is still an underused investment that offers a great way to diversify a portfolio and an excellent hedge against inflation. Whether you decide to invest in physical or non-physical gold, or in turn diversify your gold holdings, is a matter of personal choice. Whichever you choose, investment in gold could bring an extra shine to your financial future.