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How gold is taxed

A gold hoard.

Stop! Don’t click away! You haven’t stumbled onto an old post from 2011, when the gold price was soaring and it looked as though paranoid people with gold bars buried beneath their back gardens might really inherit the Earth.

And yes, I do know how the price of gold has slumped since then.

Here’s a graph of the carnage:

The price of gold has slumped since 2011.

The gold price is down from nearly $1,900 in 2011 to under $1,100.

Gold has fallen about 42% from its 2011 peak in dollar terms – but that peak followed a tremendous bull run that saw the gold price multiply roughly five-fold from the late 1990s.

Capital gains tax on gold could therefore still be a very real issue if you bought and held gold from those lows and now want to sell.

More to the point, call me a contrarian (please do, it’s the highest compliment) but I’m much more interested in owning gold now it seems about as relevant as fairy tale treasure from The Hobbit, compared to when its price was making the nightly news.

Not very much gold, mind. I’m thinking I’d like to have 2-5% of my portfolio in gold, for insurance and diversification, for the long-term.

Because I know how tax reduces your investment returns, I’m looking for the best way to invest in gold to avoid a massive tax bill in the future.

Tax on gold gains

This isn’t a simple matter, because there are always quirks with tax.

Indeed with the UK tax code clocking in at 17,000 pages at the last (surely fatal) count, you could argue it’s all one enormous quirk.

How gold is taxed is as confusing as everything else tax-related.

The specific tax on gold profits you’ll pay depends on what form of gold you own, and whether you have it in an ISA or a SIPP, or even under your mattress.

No income tax, no VAT

So what kind of taxes on gold are we talking about?

The good news for all you oligarchs out there is there’s no wealth tax in the UK payable for just owning gold.

Fill your boots! Then put your boots in a safety deposit box. You’ll not be taxed for just hanging on to your gold.

There’s also no income tax to pay on gold.

Of course that’s because gold pays no income – which is one of its most unattractive traits from a pure investment point of view, though not a shocker from a Laws of Physics perspective.

Gold isn’t a productive asset like a farm or a piece of machinery. It’s just a lump of metal.

If you own shares in a gold miner then it might pay a dividend – if it is one of the very few miners that isn’t intent on squandering every last dollar it gets on discovering harder to process deposits miles beneath the Earth’s crust.

And should you be lucky enough to get such a dividend, it will be taxed just like dividends from any other share.

Finally, there’s no VAT to pay when you buy gold bullion or gold coins for investment purposes, so no worries there, either.

(Weirdly enough, VAT is payable on purchases of silver. Perhaps the gold conspiracy theorists are on to something?)

Capital gains tax and gold

So far so good.

However there is one kind of tax you could well have to pay on gold, and that’s Capital Gains Tax (or CGT for short).

I’m going to assume you understand the basics of CGT from here. If you don’t, then please go and read my quick primer on CGT in the UK and then come back ready to keep up with the rest of us high-flyers…

*twiddles fingers*

Back? So we now all know that CGT is a tax levied on the gains you make when you dispose of (most likely by selling) certain investments.

And that includes – in some forms – gold.

“Some forms”, I say?

Yes – because not all gold is taxed equally.

Quirks, remember?

In particular certain gold coins are considered legal tender in the UK.

This makes them free of CGT.

Look for coins produced from the Royal Mint that qualify as legal tender.

According to Moneyweek:

…post-1837 British sovereigns and Britannia coins are exempt from Capital Gains Tax.

That’s because these post-1837 sovereigns and Britannias are legal tender.

But beware of accidentally buying coins that attract VAT:

If a coin is bought as a investment in gold bullion, then it should normally be exempt from VAT.

However, if a coin is sold for more than 180% of its gold-value content, it’s clearly attractive as a collector’s item and is then subject to VAT.

British gold sovereigns are recommended because they can be appealing to collectors as well as for their gold content. This gives you two potential ways in which your gold investment can hold or increase in value when you buy coins.

Note that it’s the legal tender aspect that makes these coins exempt from CGT, not their size or handiness.

It wouldn’t be advisable to invest in gold via, say, gold clocks or wedding rings (the latter for all kinds of reasons…) as you’d still be potentially liable for VAT when you buy and for CGT when you sell.

ISAs and SIPPs and gold

Aside from coins, your best bet to avoiding CGT on gold is to hold your gold in an ISA or a SIPP1.

This is where it gets tricky, because some ways of investing in gold that are attractive from one perspective are not so attractive – or not even possible – from another.

For instance, some people are keen to own physical gold, not so-called ‘paper gold’ like a gold ETF (or more precisely an ETC, or Exchange Traded Commodity).

These people want physical gold specifically because they are trying to hedge against disruption or disorder in the financial system.

Unless you have your own private fort, it could mean using a gold platform like BullionVault and directly owning gold kept in a vault under the Swiss Alps.

But such gold bullion is liable for CGT – and it can’t be held in an ISA.

In contrast, gold ETFs like the iShares Physical Gold ETF can be bought and sold in your ISA just like any other share. This makes it easy to gain exposure to the gold price while shielding your investment from tax – provided you don’t mind using an ETF.

And just to confuse matters, some of the physical gold platforms do enable you to hold gold in a SIPP, depending on the provider.

BullionVault, for instance, works with several SIPP platforms, and it isn’t shy about highlighting that buying gold through your pension means getting the Government to pay up to 45% of the cost of your gold for you, via your tax rebate.

Doubtless that’s extra appealing to a certain kind of gold enthusiast…

Golden summary

It all means you will need to shop around to most efficiently use your tax shelters to protect your personal hoard from tax.

Here’s a summary of gold taxation:

Type of gold CGT? ISA-ble? SIPP-able?
Gold coins (UK currency) No No No
Gold coins (not UK currency) Yes No No
Gold bars (owned outright) Yes No See below
Gold (owned via a platform) Yes No Yes
Gold ETCs Yes Yes Yes
Gold jewelry Yes No No
Gold teeth* Oo aar! Oo aar! Oo aar!

*If you want to try to tax a pirate (or a gangsta rapper) on their bling dental work, be my guest.

As a rule of thumb then, my understanding is that:

  • For a modest amount of gold outside of ISAs and SIPPs – UK gold coins that are legal tender are best. You can buy CGT-exempt Sovereigns from The Royal Mint. If you store with the Mint too then it will buy them back from you later. See this FAQ.
  • Gold in an ISA – Low-cost gold ETCs are best.
  • Gold in a pension – Gold ETCs are best, or you could consider one of the qualifying gold bullion providers who sell their services to UK pension schemes, such as BullionVault or the aforementioned Royal Mint.
  • Owning gold bars like a bond villain – Direct ownership of bars with storage in a suitable fortified bank, or else owning a certain monetary value of real physical gold with the likes of BullionVault or The Royal Mint… but remember you will get taxed on capital gains in this instance.

From where I’m standing option four doesn’t look very relevant to most of us, but the other three options give us a variety of ways to invest in gold tax-free.

Please note though that I’m far from the pub bore on gold – and certainly not someone who has experience of holding gold in a pension scheme. (I read up on it to finish this article.)

So as ever please be sure to do your own research in full to avoid putting money into a dodgy scheme, or investing your pension in something that ultimately hits you with a tax bill.

Equally, if you are an expert on the minutia of investing in gold, then any hands-on tips in the comments below would be appreciated.

(Note: Advice about the global financial conspiracy or getting out of fiat money before the great riots of 2032 are not really our thing on Monevator, thanks. 🙂 )

Watch out for costs with gold

Remember that while taxes can severely reduce your returns, so can plenty of other things.

In the case of gold, additional sappers of your hoard could include high dealing costs, high storage costs, insurance fees, and even theft.

Oh, and the risk you might suffer from the potentially ruinous decision to sell all your equities and even your house to buy yet more gold because you think the country is going bankrupt. (Hey, people do crazy things with gold…)

As usual, it’s over longer time periods that these smaller costs add up.

For instance, let’s say storing gold coins costs you 1% a year versus 0.25% in annual costs for a cheap gold ETC.

Let’s also suppose the gold price rises 5% a year for the next 20 years.

You decide to split your £20,000 investment in gold between gold coins and an ETC, like any good risk-averse investor.

After two decades:

  • The £10,000 in gold coins is worth £21,911
  • The £10,000 in the gold ETF has grown to £25,298

Quite a difference – enough to eat into a big chunk of those CGT savings you’d expect from going down the coin route compared to the ETC option.

To be sure this is a very simplistic example. In reality the costs for storing gold coins probably wouldn’t compound at the same rate as the price of gold (and you can’t ‘clip’ gold coins to pay your fees, so anyway those fees would have to be paid from money from outside of your gold hoard, which would alter the maths).

But you get the picture.

Note also that individual circumstances will vary.

If you’re a paid-up member of the 1% then you might already have your own liveried security vault somewhere in deepest Knightsbridge.

By all means squeeze in a few bars of gold into the space beneath Aunt Agatha’s tortoiseshell sideboard, and so cut your costs.

Equally, if you’re a daredevil risk-taker who is happy to hide your gold coins in a biscuit tin under your begonias, then you might escape storage costs altogether. Few would recommend it though.

Finally, as I’ve noted there are plenty of other things to think about with gold.

Trading costs are an issue for some forms of physical gold investment, because not surprisingly people who buy it want to know that they really are buying gold off you, not chocolate coins.

It costs money to get gold verified2, which means higher turnover costs.

Alternatively you can keep your gold in a so-called accredited facility (some of which I’ve talked about above) but then we’re back to higher storage costs.

I’ll look at this again in a future article.

Gold and tax: The takeaway

Think about how gold is taxed and how long you intend to hold it. That way you can best decide how to allocate any funds towards your investment in gold.

Perhaps the best thing to do, as usual, is to diversify your gold holdings across a range of different forms and platforms – particularly if you’ve got a large portfolio to manage – as no doubt the tax specifics will change in the future.

You might own some British sovereigns stored at your local secure bank or with The Royal Mint, a gold ETF in your ISA, and perhaps a dollop of gold bullion in your SIPP via the likes of Bullion Vault.

That’s how I intend to slowly build up my own mini gold hoard, anyway – but I’m certainly in no rush.

Note: This article is about how gold is taxed, not how about politicians could confiscate it all if they wanted to or how ETCs are as bad as shares compared to a solid coin held in your hand or how anyone who doesn’t swap everything for gold is going to die a pauper – nor equally about how Warren Buffett thinks you’re an idiot if you buy even one ounce of gold. So please keep comments on-topic. I expect we might still get some comments in this vein, what with it being an article about gold, but be warned that anything too barmy or abusive will be deleted. Also note the Bullion Vault link is an affiliate link, which means I get a small percentage cashback from any new signers – but this doesn’t cost you anything at all, it’s just a marketing payment from them.

  1. Self Invested Personal Pension []
  2. Assayed, to use the technical term []

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{ 28 comments… add one }
  • 1 Mathmo December 3, 2015, 1:05 pm

    First property and then gold this week, what’s up, TI, looking to drive a bit of pre-Christmas traffic to fund an extra sherry? 😉

    My view on gold is that it is one of those rare assets which is poorly correlated with the yield-mongering equities and counter-weighting bonds so — despite its obvious barbarism — has a place in a balanced portfolio. Cash is probably almost as good.

    But it’s not a big part. And it’s not going to be traded very often (threshold rebalancing being what it is). And the gains aren’t therefore going to be very big in absolute terms. So I suspect tax on gold is a bit of a red-herring: it’s not going to move the needle as much as the holding costs or the trading costs/spread.

    Holding costs — as you point out — depend on the paper/physical/insurance/security choices you make. SGLN is 25bp pa and has a spread today of 64bp [cf VWRL with 25bp pa and spread today of 15bp]. Not completely off the charts.

    FWIW, I stick 5% in ETC gold (SGLN) inside a tax-wrapper (SIPP/ISA) as a store of value while I wait for equities to get cheap.

  • 2 The Investor December 3, 2015, 1:44 pm

    @mathmo — Disagree. If you’d bought say a 3% position in gold in 2000 and you held it outside of your ISAs — very plausible, given that it was not yielding anything so why shield would go a lot of people’s thinking — then you could have seen it grow five-fold to a 15% share (or more at the trough of the equity bear market, perhaps) and you could easily face a CGT bill at the very time you wanted to rebalance out into some of your other assets.

    Obviously that’s trough to peak in a bullet market (though that’s how gold tens to operate when it does go up) so an extreme case to make the argument, but a double would have been easily see-able.

    On the other hand, to your point you might have had some tax losses to hand as well to offset your capital gains in a rebalancing scenario. Obviously we’d have to run 100s of Monte Carlo simulations to get any broad insights, but in my view thinking about tax is always a low-cost no-brainer.

    I really think people underestimate what a pain CGT can be if you’re not fully sheltered. I am not a rich person by any means, and I’ve paid it. It’s influenced other decisions I’ve made too, and it’s reduced my returns despite harvesting tax losses for all their worth.

    Also if there’s a more miserable-feeling tax to pay then buying a risk asset, getting a positive result, then paying the State a big chunk of the shares even though it took no risk, I’m not sure what it is. It feels like paying Don Corleone his share. (That’s not to say there shouldn’t be such a tax, in a world of the soaring 1%. I’m just saying it feels rotten).

    Re: Costs, the last time I looked I liked BullionVault for physical gold provided you’ve got more than £10,000 to invest (where the cost steps down) but then you’re into the un-sheltered tax issue, which was where this investigation started for me. Let’s say your £10K triples over 10-20 years, CGT could easily be payable. (Very easily if the tax allowance is eventually reduced from today’s relatively generous £11,100 to say £2000 as the Lib Dems campaigned on last election.)

    /high risk active investing burbling alert ON/

    As for why gold now, hah! 😉 No, no sherry. I simply always said I wouldn’t forever be “all in” on equities like I was pretty much in 2009-far later than I’d care to admit (to the extent of selling personal possessions such as unused SLRs and old laptops to buy just a few more shares in 2009, as you’ll find to my embarrassment mention of on old articles around the site). I’m even looking at owning bonds again!

    On gold, I promised myself a few years ago that I’d get some gold exposure when the froth had come off, however it sticks in the craw. But as you say, not much. The 5% upper limit I mention in my band is something my allocation would have to grow into. I’m looking for 1-2% over the next 6-12 months and then I’ll see how I get on.

    /high risk active investing burbling alert OFF/

  • 3 Ric December 3, 2015, 2:12 pm

    Great article, thanks. I guess it is about time I considered Gold again, It’s never felt like proper investing to me!

    Anyway, my point today is I remembered something I read on RIT’s blog about “contango” when investing in ETCs. It might be relevant here, so I found the link to share:
    http://www.retirementinvestingtoday.com/2010/04/investing-mistakes-ive-made-contango.html

    regards
    Ric

  • 4 The Investor December 3, 2015, 3:14 pm

    @Ric — Contango isn’t an issue for gold ETFs/ETCs, as all the ones that you’re likely to buy as a UK/European investor to my knowledge are backed by physical assets.

    Contango happens because of how futures contracts are priced, and for many commodity ETCs futures are the only / most practical way for the ETC to get exposure. They can’t be constantly taking delivery of / shipping out millions of barrels of oil, say, while other commodities like grains degrade which prohibits very long-term storage.

    As gold just sits there for millenia and is compact and easy to move — and as we’ve already got loads of ways to store and guard it, and are doing so all over the globe — physical backing is easy for a gold ETF, albeit at a cost in terms of TER.

  • 5 gadgetmind December 3, 2015, 3:21 pm

    Yup, it’s over a year since I encountered a gold bug, so it might well be time to buy.

  • 6 Ric December 3, 2015, 3:23 pm

    @ TI – Thanks, I was not sure if some of the ETCs might not be physical.

  • 7 The Investor December 3, 2015, 5:15 pm

    @gadgetmind — Complete disinterest in this post on Twitter. Another sign!? 🙂

  • 8 gadgetmind December 3, 2015, 5:25 pm

    Remember this Matt cartoon from 2008?

    http://telegraph.newsprints.co.uk/view/21892821/tg2977007_matt%20cartoon_jpg

    People only tend to be interested in an asset when its price is high, and have little interest during the lows. It’s either short memories or the love of buying high and selling low.

  • 9 magneto December 3, 2015, 5:56 pm

    Good luck to all the gold investors.

    While becoming intrigued with the Permanent Portfolio
    (to save looking up, 25% each stocks/long bonds/gold/cash)
    took a small position in gold back in 2011, but found this investor did not have the stomach for gold.
    Bought in May 2011 and sold out completely August same year.
    Restless, sleepless nights nights!

    At least with stocks while underwater, they most-times produce an income which soothes the nerves.

    For a long-term investor as noted in the article they are a curious kind of insurance; but against what?
    The usual culprit inflation seems unlikely to raise it’s ugly head at present.
    Sterling debasement? International Stocks shield to some extent.

    Must try to resist this lonely feeling that may be missing out and should add some gold back in!

    Again good luck to all those with strong stomachs.

  • 10 Mathmo December 3, 2015, 8:03 pm

    It’s always good to run more numbers if you’re a mathmo.

    I’ve just taken a look at 2000-2015 for gold and ftse. I’ve previously commented (and @TI has acknowledged the trouble with this period) on how referring back to peaks is bad sample selection: you’d be exceptionally lucky to pick a peak/trough to set-up a portfolio for the very first time.

    But let’s just imagine that you did. You set up a 95%/5% portfolio on Dec 31st 1999. £1m. And you put the equity portion in the ISA but left the gold out in the cold of the tax man’s glare.

    What would happen?

    Gold will soar from £180 to a peak of £1200 returning to £700. The FTSE will be a roller-coaster from 7000 to 3500 and back. Twice. And its yield will drift gradually down from 5% to 3%.

    The tax position is purely CGT and will only be affected purely by your rebalancing choices, specifically a sale of gold. If you don’t rebalance, there is no tax to pay. So what do you do? Annual rebalancing? Threshold rebalancing? Rebalance every time the gain in gold is the CGT allowance?

    How about we rebalance every time the FTSE100 peaks or troughs, and we do this during the best gold bull run in history?

    Mar 2003, Oct 2007, Mar 2009, Apr 2015. Dates to strike fear into every investor’s heart. The worst case scenario.

    I did this on the back of an envelope (send me a stamp, I’ll send you the envelope). I might have made a mistake – I’m in a rush to get home. Happy to share numbers if anyone interested in improving. The tax effect is under 1% over 15 years (and it’s nearly all triggered by the 2009 rebalancing: gold’s gains 2000-2002 are smaller than the FTSE yield; gold and ftse track in 09-11). Less than the portfolio yield in three months.

    So in the worse possible scenario it’s not that big. For a small portion of a re-balanced passive portfolio. If you’re slinging the stuff around in an active way, then it might be more. I don’t have the datasets to model what happens in less extreme scenarios or different real-world rebalancing strategies, but I assume they are less extreme.

  • 11 gadgetmind December 3, 2015, 8:15 pm

    The problem with rebalancing on peaks and troughs is that these can only be seen in the rear view mirror.

  • 12 Mathmo December 3, 2015, 9:37 pm

    Indeed, @gadgetmind, I think this is a worst case scenario: any practical rebalancing strategy would have smaller transactions than the extreme positions of the peaks and troughs and smaller transactions means smaller CGT liabilities… It’s an upper bound.

    (In fact it isn’t — that would be done by pricing the FTSE100 in terms of ounces of gold and taking those peaks and troughs, but then I’d have never have left my desk)

  • 13 Silas Marner December 3, 2015, 10:06 pm

    Hi TI

    Regarding your comments on the price of storing gold bullion coins. I suppose investing in a decent safe is out of the question?

    I would guess the majority of punters reading this site aren’t in the Fort Knox bracket. I find a good quality home safe adequate for the small amount of the yellow metal I keep.

    There again I haven’t had a visit from Bill the Burgler as a test…. yet!!

  • 14 The Investor December 3, 2015, 10:56 pm

    @mathmo — I’m in the pub tonight and dictating into my iPhone to write this comment like a nutter, but thanks for your maths. I’m shocked and I admit quizzical but I have been surprised by the mathematics of investing so many times that I certainly won’t say your numbers are wrong. 🙂 It just seems intuitively strange… I suppose you are rebalancing away gold’s gains periodically, curbing the rise. In my head I assume I’d have let my gold run until “the big one” which is doubtless fanciful. 🙂 But anyway I see a portfolio with £200 hitting at least £800, so big but not presuming peaky in this data series example before I bottle and sell, which gives me c.£150k of unsheltered gains, and that feels like it will cost real money, even if I only sold say half (c.£15k tax to pay off top of head?). But maths is maths, and obviously I’m ignoring the ftse’s gains over the period / total portfolio growth and also the 5% allocation band in my cavalier and self deluding active investor way… 🙂 Maybe I’ll try running some numbers this weekend. Perhaps it just boils down to me caring about 1% of £1 million plus more than you 🙂

    But to some extent we don’t disagree anyway — I noted in the article itself that costs could seriously curb the tax advantage benefits of one method versus another over time.

    Getting funny looks now. Over and out!

  • 15 The Investor December 3, 2015, 10:58 pm

    PS just re read thread and remembered you noted that I’ve noted the cost issue already too. The joy of Internet comments in the pub! 🙂

  • 16 Minikins December 4, 2015, 12:18 am

    Very interesting to hear about gold when everyone else is talking about bombs. Well, some are now talking about currency wars and that might well strengthen the position of gold as a safe haven so it makes sense to be considering it and the tax situation. Good luck with your calculations on that, it looks a bit more complicated after reading the comments. Funnily enough I did watch an old interview of Warren Buffet just yesterday talking about how you can get so much regular income out of farmland but only the occasional fondle out of gold…
    That last row of the gold summary table made me laugh so much on the tube I nearly choked on my Ricola..

  • 17 Baby Boomer in Croydon December 4, 2015, 3:03 am

    After loosing my gold wedding ring in the sea off Port Elizabeth in 1979 I did not reinvest in a new wife or wedding ring.

    Is now a good time to invest in a replacement and what would my Capital Gains or losses be on the investment today?

    You cannot put a price on some investments!

  • 18 Adam December 4, 2015, 5:43 am

    > However, if a coin is sold for more than 180% of its gold-value content, it’s clearly attractive as a collector’s item and is then subject to VAT.

    Even if you pay 20% VAT on it, you’re still getting 144% of the value you’d have got for an alternative not subject to the collector’s premium.

  • 19 Kamil December 4, 2015, 9:34 am

    I treat gold as an insurance. Insurance means, that you pay little for it, but it give you massive profit when an insured situation occurs. That’s why 5% of my portfolio is in physical gold and, what’s more important, in GDXJ ETF, which hold small gold miners stocks, and not the gold itselft. Why it’s more important? Because it works, as a leverage to gold metal (not because the ETF is leveraged, but because it hold risky stocks). Gold can raise 1% a day, but the GDXJ will raise 5%, so I don’t need to hold much portfolio in it. Like an insurance. 5% of portfolio in GDXJ isn’t much, but it provides massive profits in case of financial crysis/war/terrorist attacks etc., when the stock market is plumming.

  • 20 London Rob December 4, 2015, 9:53 am

    I’ve been looking at gold as the old insurance play, but I am still in accumulation phase (and will be for a fair few years), so generally sticking to income generation within the ISA. At present, if I were going to do Gold, I would do it as an ETF in a non tax wrapper account, as at most I would buy maybe 10 – 20k worth, sure, if that doubles up then 40k, but everything else I have is tax efficient, so I can cope with just selling out my 10k (approx) limit to avoid CGT – I guess it all comes down to personal choice. I’ve stayed away from the likes of BullionVault etc. due to the ongoing storage costs…
    London Rob

  • 21 Survivor December 4, 2015, 12:18 pm

    @Baby Boomer in Croydon

    Howzit, I did it a bit differently, found a wife in Port Elizabeth & when I resigned from the contract by gapping it, sold the ring around the top of the market in London by random timing.

    Had I kept them, my losses today would be all my capital for sure, one way or another. I have similarly been shy to make a similar investment, given recency bias, scars & a healthy fear of parasites or predators….. 🙂

    My gains since then have been sanity, freedom, happiness, peace & unfortunately ~ a Kg or so around the waist, [happiness too can have a negative cost, like red wine] so all-in -all, I agree that you cannot put a price on some investments !

  • 22 Mathmo December 4, 2015, 12:43 pm

    The addition of a spouse does of course increase the CGT allowance available as the assets may be freely transferred within the marriage tax-wrapper, although in financial terms, that really is the tail wagging the dog. 😉

    @TI — I admire your dedication to commenting in the pub. If I get a chance I’ll re-do the numbers on the front of an envelope and see if I get the same answer and open up for peer review. Need a better / more consistent source of data to do this sort of back-testing, pulling off googled charts is tedious!

  • 23 magneto December 4, 2015, 5:42 pm

    There are four main income producing asset classes; Stocks/Bonds/Cash/Real Estate. A not-know-any-better investor (possibly a good thing), might allocate 25% to each asset class in the search for
    ‘A Well Balanced Portfolio’.

    The above seem to cover most contingencies in an investor’s expected life.
    Apart from war or famine, using portable gold to flee from; someone please tell me what is this INSURANCE provided by gold ?

    Yours baffled

    P.S. Can well understand the diversification case, but not the INSURANCE case ! Please enlighten !
    Thanks

  • 24 david December 4, 2015, 7:26 pm

    @Kamil – GDXJ is down 80% since its launch on NYSE in late 2009 while the GLD ETF (based on physical gold price) is down 5% since the same time. Junior Miners don’t do so well. Since GLD’s peak in 2011 it’s down around 40% while GDXJ is down 86%. You don’t get “massive profits” from gold stocks when the stock market is crashing or during a crisis – gold stocks were destroyed during the crisis of 2008, with Barrick being down 60% from top to bottom. AAA government bonds did very well however. A global bond index and global stock index are much better investments than gold stocks. One thing I’ll concede is that Barrick and other gold stocks like Newmont seemed to go up a bit during the weeks after 9/11 while the S&P500 and other indices were going down, so it seems to work during major attacks on USA. But “massive profits” only happen when the gold price is booming, and that hardly ever happens.

  • 25 The Investor December 4, 2015, 10:27 pm

    @david @Kamil — I agree with david, in general gold miners are absolutely incredible destroyers of shareholder value. In general virtually all profits just get returned to the mine site in higher expenses, wilder prospecting, bigger salaries, crazier M&A. Personally I’d not hold gold miners as a substitute for gold itself, although a bit at the margin probably wouldn’t hurt, if you’re that way inclined.

    On the other hand, as a value play in themselves I suspect some offer value here, if only because they’re so hated. Also, they should really be benefiting from lower costs now (low energy prices, plenty of miners looking for work, companies like Weir desperate for sales so can be pushed harder on costs etc).

  • 26 SemiPassive December 6, 2015, 10:51 am

    Had held the ETF Securities Physical Gold in my SIPP a few years back, but when I next buy any it will be the iShares one as the charges are lower.
    I also think britannias and/or sovereigns stored in a home safe isn’t a terrible idea for long term buy and hold of smaller amounts.
    My biggest problem is the lack of income, when every other fund in my SIPP kicks out a minimum of 2% and most between 3 and 5%, as I eventually plan on effectively drawing whatever the natural yield is.

    But I still like the idea of adding a diversifier other than equities or bonds, perhaps making up about 5% of my SIPP, which would still only be about 1% of net worth.

  • 27 ChesterDog December 7, 2015, 2:56 pm

    SemiPassive, your last paragraph sums up the problem with gold for me.

    The lack of income and long, long periods with little growth, together with the flipside of non-correlation with other investments and potential to be there when everything else is toast, leads inevitably to a fudge.

    The fudge means that holding some gold is probably a good thing, but one ought not hold much unless convinced that the end is nigh.

    So you end up holding a piddling percentage of your total portfolio and a teeny one of your net worth, thereby reducing its possible value as investment and/or financial lifebelt to pretty much zilch.

  • 28 The Investor December 7, 2015, 3:53 pm

    @ChesterDog — Great comments, my only disagreement would be with “zilch”. Let’s say you own 3% in gold and it triples, while the rest of your portfolio halves. An extreme outcome no doubt — and chosen for ease of mental maths — but perhaps not unlike some experiences during the noughties. In that circumstance your portfolio is bolstered by nearly 20%, which is non-trivial. More importantly, the non-correlation has kicked in at a bad time, which is an undeniably good thing. Most of us would rather own an asset that goes up when everything else goes down* than an asset that goes up 25% when everything else does 15%.

    Of course the flipside is all the years of wasted opportunity cost while you sat in useless gold. But at least you only had 3% in it.

    For me I think it means I should get, as I say, 2-3% and let it run, but have yet to make my move.

    *Note that as you know (but other readers might not) gold is not such an asset. Much more random than that! But the general point is worth remembering.

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