MONEYMAGPIE AS AN GOLD AND SILVER INVESTEMENT CARL BRENNAND YOUR GUIDE TO INVESTING IN PRECIOUS METALS moneymagpie.com eBooks moneymagpie’s Gold and Silver as an investment 1 Introduction CONTENTS Why is gold so valuable? Introduction 2 Firstly, gold mining output peaked in 2003 and therefore its supply from Physical gold and silver 4 now on is limited. Gold and silver exchange Secondly, during times of recession, money may be pumped into a coun- traded funds (ETFs) 9 try’s banking system (a process known as quantitative easing) in order to kick-start the economy. This can cause higher inflation and consequently Gold and silver the return on investments such as bonds, equities and property reduces as mutual funds 11 their value is diminished. Therefore, the demand for alternative invest- ments such as gold increases, and it consequently becomes more valuable. Gold and silver futures 12 Because the recent recession has been so severe, we’ve seen a dramatic increase in the price of gold. Ten years ago, gold was £200 an ounce. From Gold and silver scams 14 then it began to rise gradually before a huge growth in the wake of the global economic collapse. Since 2008, the price of gold has been as high as £850 per ounce! What about silver? Since 2007, the value of silver has roughly doubled, similar to the rate of increase gold has enjoyed. Therefore many people see silver as an equally appealing investment opportunity as gold, despite gold’s standing as the more precious of the metals. The investment opportunities with silver are similar to those of gold, and it can certainly be a profitable market. Why invest in gold and silver? As part of an investment portfolio, precious metals are a good way of di- versifying or counterbalancing the risks that come with other investments. They’re still considered a ‘safe haven’ compared to traditional investments. Currency values are steadily falling and while Governments can artificially multiply currency by creating more of it, bullion is the only commodity they cannot do this with as there is a limited supply of it. For this reason, it’s often said that gold is a ‘recession-proof’ commodity. Simon Temple from Gold Investments says: “There is no guarantee. However, as seen during this recent recession, the price of gold has increased quite considerably. As with anything on the stock market it has its ups and downs but luckily for us and our investor the ups outweigh the downs.” One of the reasons gold is seen as such a great investment is that in the European Union it is exempt from stamp duty and VAT. Sadly silver is afforded no such allowance and is subject to 20% VAT in the UK, giving investors a far greater incentive to put their money in gold. So when should you invest? Simon Temple from Gold Investments thinks 2 moneymagpie.com eBooks moneymagpie’s Gold and Silver as an investment there’s no time like the present, particularly in the case of gold: “We believe now is a good time to invest; as the banks and the pound suffer, gold is prospering. We see more and more clients investing in gold because they feel it’s safer than using the banks.” FASCINATING FACT Gold is so pliable that a single ounce of gold can be stretched to a length of over 50 miles or beaten into a sheet to cover a hundred square feet. 3 moneymagpie.com eBooks moneymagpie’s Gold and Silver as an investment Physical gold and 2 silver There are three main ways to buy physical gold and silver – in the form of bars, coins (or rounds) and jewellery. Owning an actual piece of precious metal is an attractive prospect at the moment – this is because if there is a stock market crash, for instance, then it is a great comfort to have something safely stored away that is likely to only increase in value. It’s the ‘savings under the mattress’ philosophy but with a commodity that is far less likely to fall in value than money. If you’re looking to buy gold or silver, your best bet is to use established British or European dealers who will deliver it straight to your house through trackable insured couriers. Go to a large, well-known firm with a good track record such as Goldline, ATS Bullion, Chard or GoldCore. Alternatively, you could visit Coinex, a trade show organised by the British Numismatic Trade Association (BNTA). Only BNTA-approved dealers and international guests are permitted to sell at Coinex, so you can be confident that you’re buying from a reputable trader. You can also buy gold through The Royal Mint’s recently launched website, royalmintbullion.com. Like the other firms, you will be able to have the gold delivered to your home through an insured postal. However The Royal Mint also allows you to store your gold or silver in The Vault, their on-site pre- cious metal storage facility – which is protected at all times by the Ministry of Defence. Whenever you buy gold or silver, you should ensure you get a receipt and confirmation of delivery details before paying. Most dealers will offer a dis- count for buying in large quantities; at the other end of the scale there will usually be a minimum purchase applied. You can expect to pay for shipping and handling. A major issue when buying gold or silver is storage. Putting it in a safe at home is a good option, but ideally you should use a bank safe deposit box. For one thing, if you have gold or silver stored at home you will need to inform your insurer and this could increase your premium. And of course there’s the fact that no home security system will be as airtight as a bank vault’s. If you’re not comfortable about storing precious metals at home, some com- panies will not only sell you them but offer to store them for you too. These operators include BullionVault, who keep the items in a high-security vault of your choice. You’ll be charged 0.12% a year for storage, and 1% for stor- age in The Royal Mint’s Vault, so you may want to compare this fee against the cost of buying a safe and/or improving your home’s security system. Bars Gold bars Buying bullion bars is the traditional way of investing in physical gold. 4 moneymagpie.com eBooks moneymagpie’s Gold and Silver as an investment Buyers have confidence in bars as they can be satisfied that a certified item consists of 99.5% pure gold, or almost 24 carat. There are also practical advantages to buying bars; mainly that when buying in bulk there are less individual items to deal with than there would be with coins, for example. Storing gold bars is made easier by their rectangular shape as they can be stacked together to best utilise space. Sizes of gold bars include, but are not limited to: • 400 troy oz (12.4 kg) • 1 kg (32 troy oz) • 10 troy oz • 1 troy oz • 100 g • 1 tael (50 g) • 1 tola (11.7 g) The London Bullion Market Association classifies gold bars by its Good Delivery specification. This stipulates that bars must have: • A fineness of 99.5% • Marks stating serial number, refiner’s hallmark, fineness and year of production • A gold content of 350 – 430 troy oz Many people see bars as a better investment than coins because they gen- erally carry a lower price premium than coins or jewellery. Simon Temple agrees with this: “We feel coins and bars are the best investments to make. The coins and bars we deal in are internationally recognised and therefore are able to be sold across the globe.” The Gold Bars Worldwide website offers a guide to buying and selling gold bars for beginners and has easy-to-use guides on gold. Small bars can be bought from dealers such as Spink at about 5% above metal value and sold back at the same rate below value. As with most trades, dealers make it cheaper for customers who buy or sell gold in bulk. When buying bars it is important to check that the dealer is reputable and what the insurance costs are. Make sure you’re completely confident before you hand any money over. Silver bars As with gold, a popular way of investing in silver is by buying actual bullion bars. In some countries, such as Switzerland and Liechtenstein, bullion bars can be bought or sold over the counter at major banks. 5 moneymagpie.com eBooks moneymagpie’s Gold and Silver as an investment The flat, rectangular shape of silver bars makes them ideal for storage in a home safe, a safe deposit box at a bank, or placed in allocated (also known as non-fungible) or unallocated (fungible or pooled) storage with a bank or dealer. Silver bullion bars should have a fineness of 99.9% and are available in various sizes: 1000 troy oz bars (311 kg) are really for large bullion dealers due to their size and the fact they’re not ‘divisible’ i.e. unlike coins you either buy the whole bar or nothing. For private investors, haulage and storage costs may make bars of this size unviable. 100 troy oz bars (3.11 kg) are the most popular with retail investors as they are manageable in terms of size and weight. Major brands include Engelhard and Johnson Matthey. Due to their status, they tend to be cost- lier than other suppliers but you can be confident of their quality and that your money has been well invested.