Want to make some cash but boggled by the world of stocks and shares? Now might be the perfect time to invest in gold.
There’s something inherently fun about holding a shiny yellow bar in your hand, and thanks to a current market dip, it could also be a savvy money move.
After months when the price of the metal seemed unstoppable, gold prices have finally started to fall back over recent days as relations between China and the US begin to thaw.
Below, Metro brings you up to speed, with a guide on how to get started for absolute beginners.
Why is now a good time to invest in gold?
The golden rule of investing in gold: do it when prices dip for the biggest financial gains when you come to sell.
The precious metal tends to rise in price when investors are worried about the economic or political situation, or when they feel that other assets are expensive.
It represents a ‘safe haven’ for many people’s assets. There’s a limited amount of it and it has consistently held its value through history, which is why people run to it in times of trouble.
Gold is traditionally measured in dollars per troy ounce (a slightly heavier weighted version of an ounce). It had previously surged to above $4500 dollars an ounce (£3432) as people worried about whether companies developing artificial intelligence capabilities had been overvalued and could come crashing down and President Trump’s erratic behaviour over tariffs.
It’s now back below $4000 an ounce, which means that a 1 kg gold bar would be worth $128,000 (£97,000) compared with $144,000 (£110,000) earlier this month. Gold bars can be bought from the Royal Mint in weights as small as a gram, if you don’t have that much money to lay out.
How to get started investing in gold
Buying physical gold
Buying and holding gold bars, coins or jewellery is the obvious way to get exposure to physical gold, although it comes with risk if you’re simply buying jewellery and keeping it at home.
For a start, you’ll need to ensure your gold is pure and authentic, which might require studying hallmarks and knowing how to test precious metals.
You’ll also need to know that your assets are adequately insured, which might push up your premiums.
You could also choose to buy and hold gold bullion with a reputable dealer, where the gold may be held in a vault for you. The Royal Mint offers this service, for a fee, as do companies such as BullionVault, which also allows you to trade it via an app.
Adrian Ash, research director of BullionVault, says the company has seen more Gen Z investors than ever wanting to buy gold like this, with those aged between 17 and 27 now accounting for over 15 per cent of its investors and rising.
‘Gen Z has grown up amid economic uncertainty, inflation and geopolitical tension. Now they’re looking for stability and a tangible store of value as they start saving for the future,’ he says.
There is also a peculiar and potentially valuable quirk in holding physical gold. Gold coins are exempt from capital gains tax if they are produced by the Royal Mint. However, this advantage is offset by the fact they can’t be held in tax-efficient Isa or pensions and are usually more expensive to buy than the same weight of gold in bars.
Investing using a fund
If you don’t want to hold actual gold, another way to get exposure to the gold price is through buying Exchange Traded Commodities (ETCs).
There are several of these funds on the market, the most important things to check when you choose between them are the annual charges and whether they are physically or synthetically backed.
A physical ETC holds the gold it is tracking itself, which means that it will always completely follow the price, while a synthetic ETC can use different investment structures to replicate the price, which raises the risk of tracking error slightly.
Jason Hollands, at wealth manager Evelyn Partners, suggests the Invesco Physical Gold ETC, where the money you invest is secured by physical gold held in the London vaults of JP Morgan Chase Bank. The fee for the fund is 0.12%.
‘The advantage of using an ETC is that you can trade it swiftly and these can also be held with tax efficient accounts such as Isas, SIPPs and Junior Isas – unlike a piece of jewellery or a chunk of bullion,’ he says.
Investing in other gold assets
Another way to access gold is through companies that are involved in gold processing and finding. Gold mining companies are an obvious way to do this, as their share prices are linked to the gold price.
In recent years, the share prices of these mining companies have not exactly tracked the gold price, but some fund managers reckon that means that now is a great time to buy.
‘The current economic conditions remain favourable for mining companies as cost pressures have eased and energy prices have fallen, leading to gold producers enjoying higher margins from rising gold prices,’ says Evy Hambro, who runs the BlackRock World Mining Trust.
Robert Crayfourd, who runs another gold trust, Golden Prospect Precious Metals and CQS Natural Resources Growth and Income, believes that these companies will outperform gold itself in coming months.
There are large and small gold miners listed on the UK stock exchange, and it can be difficult to pick the right ones for yourself if you are buying individual shares.
Gold funds, such as Hambro’s World Mining Trust or the Golden Prospects fund mentioned above will give you exposure. The advantages of these funds are that they often pay strong cash dividends to give a regular income and can, like ETCs, be held in an Isa or pension.
They are, however, volatile, and sometimes underperform the gold price.
What are the risks with gold?
Gold is unlikely to lose all of its value completely, but the price does rise and fall over time, and if you buy when it is high you risk watching the value of your assets fall back.
You can minimise many of the risks of gold investment by taking sensible precautions, ensuring that you buy through reputable companies, hold your assets in a safe place, and take advantage of tax-free structures such as Isas and pensions if you are buying funds rather than physical gold.
While the value of this commodity can rise in certain economic circumstances, if you hold too much of it and too little of other types of assets you risk missing out on growth from other assets including those that pay regular income.
Remember that gold should only be part of a diversified portfolio, as if you want your investments to work hard for you throughout different economic conditions you will need many other types of asset too.
Could gold bounce back?
Tom Stevenson, investment director at Fidelity International, points to a historic parallel in the 1970s that suggests there’s still value to be had in gold.
In the Seventies, he says, gold soared in price due to inflation, high energy costs and geopolitical tension. By 1978, gold had, as today, doubled in a couple of years. But, far from peaking, it went on to rise three-fold again.
‘No-one is suggesting that history will repeat itself, but it does caution against thinking that gold will run out of steam just because it has had a strong run already,’ he adds.
Russ Mould, investment director at DIY investment group AJ Bell, says that looking at the price of gold against other assets can help us work out whether it will rise or not, but that at present there are mixed signals over where the price will go.
Because a lot of gold is held in the US, one signal to look at is how cheap gold bars look against other assets such as US houses, and whether US consumers can afford the metal on the income they have.
He has looked at the gold price against the disposable income of a US consumer and the average US house price and concluded that, compared to those, it looks cheap.
He concludes that gold is “devilishly difficult to value”.
However, one likely outcome is that, when global tensions rise again, the price of the shiny stuff will rise with them. If you’ve got gold tucked away in your back pocket, that’s the time to sell it if you want to make a profit.