The Pure Gold Company
25 June 2016
This Is Money presenting alternatives to traditional investment methods in the aftermath of Brexit. Josh Saul of the Pure Gold Company talks about investment in physical gold and gold coins.
The value of gold soared more than 20 per cent in the hours that followed the Brexit vote in the UK – as investors scrambled for somewhere safe to put money due to concerns of a stock market meltdown. But does this mean we should join in the buying frenzy and pile into this precious metal?
Josh Saul, chief executive of bullion trader Pure Gold Company, sounds a note of caution over current gold fever – but still believes it is a great investment for long-term security.
He says: ‘A sense of panic and uncertainty has seen people buy gold – not just in Britain but right across the European Union. A lot of investors have been putting money into gold for the first time. However, people should not buy for short-term gain, but hold it as a long-term investment.’
Gold was trading at $1,260 per troy ounce on Thursday evening, at which point polls suggested the campaign to remain in the EU would enjoy a narrow win.
It was just a few hours later, when it became clear that we had voted to leave the EU, that the price had soared to about $1,350 an ounce – a six per cent jump.
And when the impact of a sliding pound against the dollar is factored in, the increase in the gold price for British buyers is more than 20 per cent.
Saul believes that one of the big reasons for the leap in value is that many investors were caught off guard and had expected us to remain in the EU.
The last time there was economic turmoil on a similar scale was during the banking crisis of 2008. In the following six months gold rose by more than 30 per cent in value. In the next three years it increased by more than 150 per cent.
But from a peak of $1,895 an ounce in 2011 it gradually fell to $1,062 an ounce by December last year, before it rallied in the New Year. Before the Brexit vote, gold was up 22 per over the year.
Lawrence Sinclair, head of bullion at gold trader Spink, says: ‘There is a saying in the City that you should hold 10 per cent of your assets in gold and hope that its value does not go up – because when it does this can mean the economy and stock markets are in trouble. We are currently in this situation and over the next year markets could well be chaotic.’
But Sinclair points out that a lot of people who own gold were selling in the immediate aftermath of the Brexit vote – indicating that they thought they were selling at a good rate and that prices might fall later on.
Sinclair says: ‘Gold has been a universal currency since the dawn of time.
‘It is a fear currency and right now we are in a unique situation where it has more value.
‘The appeal of bullion is that you are holding a lump of gold – something everyone can understand.’
Twenty-four carat gold contains 999 parts of pure gold per thousand and is the purest form of the metal available.
A gold bar – as defined by the London Bullion Market Association – is made from 400 troy ounces of gold. This is just over 27lb or 12.5kg.
You would have to hand over more than £360,000 for one of these, but bullion dealers are happy to trade in smaller slices – starting from as little as those worth £20. You can also buy a 100g bar for about £3,000 or a 1kg gold doorstop for closer to £30,000.
Most investors keep gold bullion as bars under lock and key, with a merchant charging up to 1.5 per cent a year to look after it. The price includes insurance.
When selling you can expect to be paid about 2 per cent less than the market price – because of the spread between buy and sell prices.
Bullion merchants include BullionVault, Baird & Co, The Pure Gold Company, Royal Mint, The Gold Bullion Company and Spink. Although it is wise to store gold in a secure bank vault there is nothing to stop you storing it at home in a safe.
Some pension providers allow you to hold gold in a SIPP – a self-invested personal pension.
However, only gold bullion that is a minimum 99.5 per cent pure can be held in this way. The gold cannot be stored at home and must be stored in a secure vault.
The benefit of holding gold in a pension is that you are effectively buying free of income tax and there is no capital gains tax to pay on any growth in the value – but you may have to pay income tax on withdrawals.
You do not need to lay your hands on physical gold if you buy a gold-linked exchange traded fund, or ETF. These are investment vehicles listed on the London Stock Exchange that mimic the performance of the gold price. They can be put into a SIPP or a tax-efficient Isa.
Among the gold-based exchange traded funds listed on the London Stock Exchange are ETFS Physical Gold, ETFS Gold Bullion Securities and Source Physical Gold P-ETC.
The Sovereign and the Britannia gold coins are deemed legal tender in Britain, meaning they escape capital gains tax if they rise in value.
The most recently minted Britannia is a troy ounce of 24-carat gold and has a face value of £100. A Sovereign is 0.235 troy ounces of 22-carat gold and has a face value of £1. However, their real value goes up and down with the gold price. A sovereign is currently trading at about £235.
The Britannia is a modern coin first issued in 1987. Originally minted as 22-carat pieces they started to be produced in 24-carat gold in 2013. A Britannia can be purchased for about £990.
Gold coins should not be confused with the items that collectors amass. However, numismatics – the collection of coins – has seen the value of 200 of the most rare British coins grow almost 200 per cent in the past decade. This is an average annual return of 11 per cent a year, according to coin and stamp dealer Stanley Gibbons.
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