Is gold a good investment and how to gain exposure (2024)

Gold hit another all-time high in August of over $2500 (£1922) per ounce, continuing what has been a stellar year for investors in the precious metal.

The latest leg up was triggered in large part by expectations of interest rate cuts, with earlier gains being driven by geopolitical troubles putting a shine on gold’s status as the ultimate safe-haven asset.

For much of human history gold has had an important role in storing and measuring wealth, and it remains a popular investment today as evidenced by the recent climb in price.

This article covers:

• Why do people invest in gold?
• Is gold a good investment?
• What are the risks of investing in gold?
• What affects the price of gold?
• How do I invest in gold?

Read more: How to invest £10,000

Why do people invest in gold?

Gold is traditionally seen as an asset that holds its value. This means investor demand for it, and its price, tend to rise whenmarkets are struggling.

This brings the crucial benefit of portfolio diversification, which means holding assets that move in price independently and differently from each other.

Gold has a limited supply, with discovery and extraction of new gold being time consuming, difficult and expensive. This supply constraint supports the price by ensuring the market will not suddenly be flooded with newly-extracted gold at some point in the future.

“Gold has a reputation as a safe haven and a way investors can diversify risk – it acquired extra shine as equity markets turned more volatile amid rising concerns about inflation and the prospects for the global economy,” says Susannah Streeter, of investment platform Hargreaves Lansdown.

“Gold investments are seen as a hedge against inflation due to its historic use as a store of value dating back thousands of years, and the relatively limited supply of the metal.”

She says a large part of this was because of fearful investors turning to it in a time of crisis.

Read more: Best stocks and shares Isas

Is gold a good investment?

This is very subjective and depends on your investing goals, risk tolerance, time horizon and which other assets you own.

While it has proven less volatile than shares during times of economic distress, for example, it has made lower gains during stock market rallies. Gold can therefore be beneficial in preserving wealth and limiting downside risk, but typically offers lower returns when stocks are doing well.

“Gold can be useful to hold in a portfolio alongside shares, bonds, cash and property. It behaves a bit differently to other assets, and so can act as a bit of extra diversification,” says Laith Khalaf, of investment platform AJ Bell.

There are also tax advantages to owning gold, depending on how the asset is held. Bullion coins purchased from the Royal Mint are technically classed as legal currency. This means they areexempt from capital gains tax. Bullion is also VAT free.

Read more: The most valuable Royal Mint coins: rare 50p, £2 and £1 collectables

What are the risks of investing in gold?

There are potential downsides. Streeter points out that, unlike other investment assets, gold does not pay an income – dividends or interest; the returns for investors simply come from selling at a greater price than they paid to buy into gold. This means that the opportunity cost – what you might lose by choosing one investment over another – could be quite high.

In times ofhigh interest ratesinvestors may want to consider whether they could get a better return from fixed-income assets such as bonds. These are also considered relatively safe when compared to company shares, especially in times of stock market volatility.

Khalaf warns that, like any investment, gold is not always free of price volatility. “Gold is considered a safe haven, because it tends to do well in times of economic distress. However, the precious metal is actually pretty volatile, and heavy losses can occur.”

The price of gold fell by 20% in late 2020 as the world recovered from the economic shock of the Covid pandemic, for example.

What affects the price of gold?

A key factor affecting the gold price is supply and demand, as well as investor behaviour. As markets become turbulent and interest rates increase, wary investors often head for gold as the best-known safe haven asset, pushing up prices.

Khalaf says: “Gold tends to do well when the global economy is having a tough time. It also performs well in times of dollar weakness, as the precious metal is priced in US dollars. This may well explain the recent rise in the gold price.”

Gold is also seen as a hedge against inflation, although the extent to which the two reliably inversely map each other is debatable.

Gold is also a relatively liquid asset, depending on how it is owned. This means it should not be difficult to find a buyer down the line. Bullion bars or coins can often be sold back to the original vendor. However, the price paid will usually be slightly below the price they sell at.

How to invest in gold

If you do decide to invest in gold there are two distinct main options. The most obvious way is to buy bullion directly.

This could be in the form of gold bars or coins. Both are available to buy from Direct Bullionor independent gold brokers.

TheRoyal Mint, meanwhile, offers gold bars as small as 1g– with prices currently starting from £75.

If you wish to make a larger investment in gold, consider a limited time promotion from Direct Bullion. If you buy £5,000 worth of physical gold, the independent broker will add £100 worth of silver to your asset collection.

Direct Bullion also offers secure delivery to your chosen address, so you can store your precious metals in a safe location.

Storage costs should be factored in if you’re buying physical gold, and some sellers providing these services.

If you don’t want the hassle of storing your investments, then consider the second option. This is to invest in gold indirectly via an exchange-traded fund (ETF) or by buying shares directly in gold mining companies.

Khalaf says: “For the vast majority of investors, a physically-backed ETF will be most appropriate. This actually backs your investment with physical bullion.

“There are some funds out there which use derivatives to gain exposure to the gold price. These are riskier, more complex, and come with costs that aren’t easy to decipher.”

One option is to invest in gold with Lightyear, an investment platform. In particular, it hosts the iShares Gold ETC, an Exchange Traded Commodity which works like an ETF. It aims to mimic the performance of gold, with all physical bars held with its custodian JP Morgan.

What about digital gold?

Those looking for more flexibility may want to consider “digital gold”, now offered by theRoyal Mint.

Investors can spend as little as £25 to buy a fraction of a gold bar. This method could also be used to spread investments month-by-month. The Mint charges a storage fee of 0.5% plus VAT.

Unlike bullion, digital gold does attract capital gains tax, but it is all physically backed by real gold deposits.

Remember, as with all investments, your capital is at risk.