The History of Gold
Gold is a truly global currency that transcends governments. It has been the source of wars and the stronghold of wealth for millions of people in times of trouble. Gold, in some capacity, should make up part of every investor’s portfolio.
The Value of Gold
With volatile markets and a highly unpredictable global economy, it seems wise to spread your investment risks across several different asset classes rather than being over-exposed in any one area. Many fund managers argue that precious metals should always form some part of a balanced investment portfolio.
There are also some tax advantages to investing in gold. Purchasing fine gold bars or investment coins is straightforward and does not attract VAT, as gold is classified as an ‘investment metal’ in the UK. If purchasing British minted gold coins (such as Britannias or Sovereigns), the investment is also exempt from Capital Gains Tax
Gold vs Other Precious Metals
Investment products in the form of coins and bars are available in the four major precious metals; being gold, silver, platinum and palladium. The vast majority of physical precious metal investment, however, is in gold products. This is because, unlike all other metals, the government classes gold as an ‘investment metal’, and consequently gold investment products can be purchased without the addition of VAT.
Conversely, when purchasing physical investment products made of silver, platinum of palladium, VAT is payable. This irregularity makes physical investment in these metals considerably less viable (as the price would need to rise by 20% simply to cover the VAT element) unless you are purchasing through a business or fund which is VAT registered.
Most investors wishing to invest in non-gold precious metals tend to do so by investing in an exchange-traded fund, so that VAT does not become payable. Due to its lower intrinsic value, we do however still see considerable interest in silver bars and coins, predominantly for gifts.
Ways to Invest in Precious Metals
There are a large number of listed businesses in the precious metals sector. Whether they are involved in manufacturing, exploration or mining, share valuations in these companies tend to correlate to the underlying precious metal prices to some extent.
Whilst this type of investment has the benefit of also exposing the investor to potential benefits associated with investing in a well-managed company or a share listed on a buoyant market, it does not represent a direct investment in the underlying precious metals. Investments in shares of this type could also be affected by market sentiment, political issues or company specific events.
Exchange-traded funds have been in existence for around a decade and offer a simple way to gain direct exposure to precious metal prices. The investor buys shares in a fund, which in turn simply owns an amount of gold equal to the total assets it is managing.
The investor never takes delivery of any physical product. Depending on how the fund is structured and how the gold within it is allocated, investing in an ETF can involve a degree of counterparty risk.
It is possible to open a metal account, which operates much like a bank account, but where the investors account is defined in grams of precious metal rather than in currency. Metal accounts can be ‘allocated’ or ‘unallocated’. If the account is ‘unallocated’, the investor simply has a general charge over the gold owned by whoever is operating the account and is therefore taking a risk should that counterparty go into administration.
With an ‘allocated’ account, the investor’s gold is segregated and in theory there should be no counterparty risk. The investor still does not actually ever take delivery of their precious metal and will also incur charges for the storage and insurance of their metal.
This is the most straightforward way to invest directly in precious metal and means the investor is not exposed to any third party risks of default. Physical metal can be purchased from Betts Investments and delivered directly to you via secure and insured couriers.
There are no on-going charges and both coins and bars are highly liquid and simple to sell either back to Betts Investments or to another bullion dealer. Many people also derive considerable pleasure from owning gold in its physical form.
Bars or Coins?
To generalise, coins tend to represent smaller, more convenient investments for the small investor, where bars tend to be larger, with lower premiums over the metal price due to lower manufacturing costs.
Bars are produced by several different refiners and come in a range of sizes from 1g to 12.5kgs (known as a ‘good delivery’ or ‘market’ bar and generally used by central banks and major investors). The investment bars sold by Betts Investments are all 9999 bars (i.e. 99.99% pure).
Coins are generally produced by national mints on behalf of governments and again come in a range of sizes, although they tend towards lower weights than bars. Coins are often minted from 22ct gold to give them better physical properties, but will contain a set amount of fine gold (for example a Kruggerand contains exactly one ounce of fine gold, but actually weighs 1.09 ozs).
The pros and cons of investing in bars and coins are set out below:
- Small convenient unit
- International recognition
- Standard form
- Legal tender in country of origin
- Aesthetic & nationalistic appeal
- British coins offer CGT exemption
- Greater premium over fix, which varies depending on coin type
- Collectors coins require further knowledge as price is affected by rarity & condition
- Supply can be tight affecting margins
- Low manufacturing cost
- Available in wide range of weights
- Simple, convenient denominations
- More convenient units of storage for large investors
- Various manufacturers (non-standard)
- Slight premium payable for individually numbered certificated bars
- Lowest premiums only available on larger bars for major investors
Types of Coin
‘Collectors coins’ are harder to find and as a result the premium paid is higher, but their value may be retained as a collectable item rather than simply as a store of precious metals. Betts Investments is a bullion dealing business and has little antiquity expertise. Consequently Betts Investments focus on ‘bullion coins’ and ethically sourced investment products.
- Purely valued by the gold price
- Legal tender in country of origin (in theory)
- Convenient form of metal investment, particularly for the small-scale investor
- Generally in good supply
- Easy to sell for full value
- No ‘collectable’ value; coins will not become antique collectors’ items
- Gains possible even if underlying metal value falls
- Very large gains possible with expertise
- Long term investment can achieve added benefits as coins become rarer and gain antique value
- Limited availability for some coins as market is smaller
- Achieving full value on sale may be challenging
- Antiquity expertise strongly recommended
Betts Investments sell the most popular bullion coins in various sizes as well as a range of ethically sourced investment products. Other bullion coins are available, such as American Eagles, Australian Nuggets, Chinese Pandas and Austrian Philharmonicas. We do not offer these coins as a matter of course, as very tight supply and demand can lead to dramatic fluctuations in their prices. However, please contact us if you would like to discuss any product not currently available on this site, as we will almost certainly be able to source it for you.
It is also worth noting that purchasing British minted coins In the UK has an added benefit. Because they are technically legal tender, an investment in these coins will not attract Capital Gains Tax.