Gold: how to be a winner
August 23, 2011 | By:
Fearing the worst, high rollers are buying gold. But even we can buy small amounts to keep it at home. Sheila Prophet reviews the pros and cons

Golden opportunity: the noble metal has become so popular, you can even buy it from vending machines. {a href="https://www.flickr.com/photos/curtisperry/" target="_new"}Photo by Curtis Gregory Perry{/a}

If the global fiscal and economic situation unravels any more, we could be facing hyperinflation – and gold could be a good hedge against that. But in a crowded marketplace, if the central banks and bullion funds keep buying this precious metal – not to mention the Eastern plutocrats who are losing faith in paper currency – it seems the price of this precious metal could reach untold levels.

Already, demand has risen by 11 per cent in the first three months of this year, while the purchase of gold coins and bars was up by 52 per cent over the same period. Now the Canadian bullion dealer Nick Barisheff has predicted that within five years old yeller could reach $10,000 an ounce: nearly a six-fold increase on today’s record price. So how can you and I get a piece of it?

Well, it’s never been easier to get your hands on the stuff. You can buy it online and have it delivered to your door, you can pick it up in shopping malls such as London’s Westfield and you can even buy it from Gold to Go vending machines, which have been installed at a number of international airports and dispense packaged bars and coins, like chocolate. (For obvious reasons, these machines are armour plated and surrounded by CCTV cameras.)

On a more genteel note, the Royal Mint has been doing a roaring trade in gold coins, including a solid kilo number to commemorate the Royal Wedding. (Only 40 of these were produced, with a sale price of £40,000, despite the fact that, as many people noted, it looked nothing like William and Kate.)

Where’s the catch, then? Well, the world may right itself. Moreover, buying ‘physical’ gold means paying what is called in the trade ‘premium over spot’. That means the dealer’s cut, and as this can be up to nine per cent above the ‘spot’ or fixed price, this makes coins expensive. There is also a further snag in the shape of a dealer’s reverse premium, or ‘discount over spot’, if you decide to sell back your gold.

But if you do decide to invest in coins, experts generally advise choosing South African Krugerrands, which are the world’s most common gold coins, and traditionally have the cheapest premium.

The Krugerrand is a bullion coin, which means its value is purely in the gold it contains, as opposed to coins that have a face value or will become prized collectors’ items (as people buying Royal Wedding coins are no doubt hoping).

Buying bars

The other way to buy bullion is gold bars. These come in all sizes, from tiny one-gram trinkets to what is called London Good Delivery Bars, which weigh 400 troy ounces (a troy ounce being slightly more than a normal ounce, or 12.4kgs). You wouldn’t want to store one of these in your home, however, and in fact they are only available to large banks.

As a rough guide for individual investors, expect to pay between £900 and £1,000 for an ounce of gold. If you fancy a kilo, that’s around £31,000. As you have to pay a premium on each purchase, the advice from experts is to buy one larger bar rather than several smaller ones, though of course you cannot later split this up if you choose to sell it

Gold’s purity is measured in carats, with 12 carat being 50 per cent gold, 18 carat being 75 per cent and 24 carats being 99.99 per cent, the closest thing possible to pure gold.

Bullion coins and bars both come stamped with all the essential information: their weight, number of carats and the maker’s mark. Some bars also contain serial numbers, but this is not essential.

If you buy from a reputable dealer, you can be confident your bullion is the real deal. You can also simply use your eyes. As the website Tax Free Gold puts it: “ There are lots of replica bars on the market, but it is extremely unlikely that any of these could be mistaken for the real thing, except at a distance, or by a complete idiot!”

There is nothing to stop small investors, or gold bugs as they are nicknamed, storing their gold bars or coins at home. As gold is a noble metal (meaning it does not corrode or tarnish under normal conditions), there are no special rules about storage, apart from the obvious advice to invest in a safe.

If you prefer a more secure environment, most banks offer safe deposit boxes. For larger amounts, specialists such as London’s Baird and Co can store gold in what is called an allocated account, though people using this must invest at least £5,000 a year, and in both cases there is a charge.

Buying physical gold is, of course, not the only way to invest. There are lots of paper options, for example:

  • Gold Exchange Traded Funds (ETFs), which are financial products backed by gold bullion held in secure vaults.
  • Pool accounts, whereby you have an interest in a pool which owns a collection of gold.
  • Shares in the gold mining industry. And as many insiders have noted, George Soros has also continued to build up his gold mining shares…


How to invest: the World Gold Council’s guide 

Gold prices, facts and research at Garlmarley

London dealer Baird and Co

London Bullion Market Association