We're delighted to have a guest writer publish a piece for us this week. Mr Pritchard explains his decision-making process when purchasing physical precious metals (in particular gold) and presents some good advice to any newcomers looking to invest. Here's his story...
There are many things we can spend our money on. From holidays to cars, to fish and chips on Fridays. But when it comes to investing, we tend to hesitate. Usually, because we don’t know what is a good investment vs a bad investment. The investment most of us make in our lifetime is in brick and mortar, and a pension. But where to go from there?
Having been involved personally in trading stocks, commodities and FOREX over several years as an enthusiastic self-investor, I have decided to turn to Gold. Why? How was the experience?
The Current Financial Market Place
At the time of writing, the stock market is enjoying a steady progressive climb into new heights across major stock exchanges. The mood is good, the market is bullish, and prices continue to impress. But in the wise words of Warren Buffet, you should "be fearful when others are greedy and greedy when others are fearful’’, (Investopedia, 2018).
There is a growing noise In the market, it’s a mumble at the moment but could be beginning to get louder. There is a possibility of a market correction coming. A market correction could be just that; where we see stocks fall in line with what would be considered more 'normal' values per share, based on earnings. Or, it could be a domino in a long line, creating a wave of failing financial systems plunging us into a recession, (CNC, 2018). The severity, if it happens at all, will be unknown until it occurs. But the fear of one has caused me to look to other investments.
Gold’s Relationship with Markets
Historically, Gold has always been the go-to precious metal for when there is uncertainty in the markets. In 1971, when a financial blip hit the USA, Gold rocketed from around $44 to $183. A fourfold increase in a couple of years, (OnlyGold). In the recession of 2008/2009, gold prices went from $870 to $1,087. However, this continued after the recession, until the markets settled down. 2012 saw prices continuing to increase and highs of $1664 were reached.
Gold prices had begun to reduce since then, which is a good sign of financial stability following that recession. But since a low of $1060 in Jan 2016, Gold is averaging higher again. Are investors hedging bets that another recession will follow?
Buying physical Gold
In the past, people often thought that some funds, like pensions, were invulnerable to a financial crisis. Many people in the UK found that wasn’t the case when their private pensions had to be government-backed when Northern Rock fell into disarray, (ThisisMoney, 2017).
While it is possible to buy ‘paper gold’, (that is, an exchange-traded fund that trades based on the value of gold), I wanted to get my hands on something, quite literally. Although it hasn’t happened before, I don’t want to be in a situation when exchange-traded Gold may become unavailable (unlikely the ETF itself, but more likely the bank I use to broker the trade closing shop, for example).
So I turned my attention to physical Gold, and I came across The Silver Forum, a collection of members who have a wealth of knowledge in Gold, Silver and other precious metals, in many forms like coins bars, and medals. Here I was able to ask all of those ‘silly’ questions that you just can’t find answers to from Google searches.
Why I went for Gold, and not Silver
My initial decision-making tree was split into two – buy Gold, or buy Silver. I was initially interested in silver, however the fact that there is a VAT fee (20% currently) on purchases made me think that this would eat into any future proceeds when I come to sell, regardless of profit. The second challenge is that my private storage facility has limited space. £10,000 of Gold take ups considerably less space than £10,000 of silver, for example. In fact, based on prices at time of writing that’s about 350g of Gold Vs 25kg of Silver!
So I decided Gold.
Although I must stress to do your own research here; my decision was to avoid an initial outlay of VAT tax, but with the price of Silver currently trading at a historical low against Gold, it could be in for an upswing in the future. Also, Silver is available in much lower monetary outlays, meaning it’s very easy to begin investing with just the change in your pocket.
Bars, or Coins?
I thought the obvious decision (as I am investing and not collecting), were gold bars. Obvious due to easy space-efficient storage, best value per gram meaning you get more gold for your currency (as manufacturing costs are cheaper). However, in the UK you are potentially liable to pay Capital Gains Tax from the sale of non-legal tender gold, which would include Bars (and actually, also many coins). However, the British Sovereign and Britannia coins are exempt from this, meaning you can buy and sell as you please without losing out on profit, if any is made.
Another benefit of coins is that you can easily sell parts of your investment, rather than needing to liquidate your entire portfolio:
- Imagine owning a 100g Bar, and you need to raise some funds for a project. You would need to sell the entire bar even though you only need the equivalent money of 5g of Gold.
- If you had 100 x 1oz coins, you can easily sell 5 coins, allowing the other 95% to remain in storage and your investment is maintained.
What I Bought
I made my first investment in Gold, buying a couple of British Sovereigns. I went for these as they fit within my planned budget and also enabled me to have more than one, so I can begin to sell one coin at a time in the future if needed.
I now have diversified my portfolio, knowing that if there is a market crash and I lose value in stocks, I have a physical possession that historically does well in that situation. Meaning that I can liquidate that asset (Gold) if and when I need. If my fear of a crash becomes unfounded, then the Gold can continue to be stored until sometime in the future when it is needed. Or could be passed down to my heir.
If you have read this far then you may be thinking of investing (or even collecting) yourself. Do some research before making any purchases, but hopefully you now have some ideas on where to start.
If you're not sure and have questions, call the Bleyer team. They value the discursive process, together with enjoying sharing the general concepts of Gold and Silver education, so take your time, talk to one of the team and proceed at your own pace. We fully appreciate this is a big decision. How we invest our hard-earned cash and savings deserves attention, careful thought, and wisdom.