Is gold a good investment?

Gold has an astounding 6,000-year history as an investment – a longer history than virtually any other investment you might hold. However, as well as being among the oldest, it is also one of the most contentious investments. There is a wide range of differing opinions on the future of gold and its power to protect against inflation.

Here, we can share some of the experts’ opinions. We spoke to Investec Wealth & Investment (UK)'s James Boulter, and the Royal Mint’s Stuart O’Reilly to delve into the benefits and drawbacks, and some approaches to investing in gold.

Gold’s allure is undeniable

Few investments are romanticised to the extent of gold, a commodity that is almost synonymous with treasure. However, it’s more than just this image and story that draw investors.

Many see gold as a more reliable form of wealth storage than cash. In the short term, its value is influenced by interest rates and governments' monetary policies. However, in the long term, it has always tended to hold its value over many decades, rather than declining as cash does. 

James explains: “It offers a feeling of security. It's something that one can tuck away and feel that they have the security of owning it and the wealth preservation characteristics that it historically has had. Everywhere in the world, banking and financial systems go through periods of convulsion – we've seen some convulsion in the banking system even in the last few months in the US – and so people look to gold as a source of stability and wealth preservation in those kinds of environments.”

It also offers considerable tax benefits

Another aspect of gold’s allure is that it can offer tax benefits when sold, under certain conditions. Stuart explains: “Any legal tender coin is exempt from Capital Gains Tax. So that is sovereigns that were minted after 1837, all the Britannias that we currently produce, and all of our commemorative coins. They will be exempt from capital gains tax when you come to sell them.”

That’s not all. Stuart continues: “The other advantage is that gold bars can be held in some pensions. So, if you have a SIPP (Self-invested personal pension) or a SSAS (Small self-administered scheme), and the provider allows it, you may be able to hold physical gold bars, within it, and benefit from the tax advantages of a pension.” Though a wide variety of investments can be held within a pension (such as equities and bonds), this certainly can set gold apart from many other physical assets.

Gold can be purchased in many forms

If you’re looking to acquire gold, it’s available to invest in or buy in various forms. One option is bullion bars and coins. These are typically sold at a price linked to the live metal price, with a slight margin to cover manufacturing and other costs.

A second option is commemorative coins. Stuart describes: “The price of a commemorative coin will reflect the rarity of the coin and the finish on the coin, because they are produced at much higher standards, for collectors.”

Then there are historic coins, which vary in cost. Stuart explains: “They have a story to tell, and they can range from close to the metal value - because the story is not that great or there are loads of them - right up to pieces where you could pay £1-2 million for an individual coin, if the story is there and the rarity is there.”

It can be used to diversify your investment portfolio

For those wishing to take advantage of some of gold’s benefits without physically buying it and holding it, there are various other ways it can make up part of a portfolio. At Investec Wealth & Investment (UK), it may be used alongside other assets such as shares and bonds to offer diversification.

James outlines how we might include gold in a client’s portfolio: “Typically, we include gold through exchange-traded commodity investments. These are exchange-traded securities and, behind them, sits this security of physical gold bullion. You might have heard of the gold futures market, that exists as well, and sometimes people refer to that as being ‘paper gold’; it's a claim on gold. We don't use futures; we invest directly where we hold gold in our portfolios.”

Gold is a long-term investment

Of course, as with any other investment, there are risks involved in investing in gold and the value of your investment can fall as well as rise. James warns: “I would encourage people looking at investment in gold to look to the medium- and long-term. The longer the horizon, the more likely it is that gold is going to do what you expect it to do, which is to preserve your wealth and help you to fight off the threat of inflation.”

As to whether gold can be effectively used to protect from inflation and retain value, he cautiously states: “Broadly speaking, when we look in history, if you hold gold over the long term – and it’s worth emphasising that it is a long-term thing – you're likely to preserve the real value of your wealth.”