The yellow metal has been on a tear for years. Gold bugs and survivalists – not to mention passive investors with well-diversified portfolios – sitting on big gains might well now be wondering how gold is taxed.
It isn’t always thus. Sometimes gold is in the doldrums.
For example, the gold price also soared after the Global Financial Crisis. By the peak in 2011 it seemed as if paranoid people with bars of bullion buried in their back gardens might really inherit the Earth.
This was the culmination of a tremendous bull run that saw the gold price multiply five-fold from the late 1990s.
And so – ever quick to jump on a bandwagon – Monevator explained how gold is taxed in the first version of this article in… December 2015.
Oops! By then gold had slumped. The price was down more than 40% from its post-GFC highs.
Remember: investing is cyclical. With knobs on, as my old man used to say.
Golden years
Happily for my never-ending quest for bragging rights over my co-blogger, in my 2015 article I wrote:
…call me a contrarian 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 the price made the nightly news.
Not very much gold, mind.
I’m thinking I’d like 2-5% of my portfolio in gold. For insurance and diversification for the long-term.
Happily, the gold price has nearly tripled for UK investors since those dull December days of late 2015:
Source: Gold.co.uk
Less happily, I’ve typically owned closer to the 2% end of my allocation range.
Still, better than a kick in the teeth, as my old dad also used to say. (And which sounds pretty ominous, typed out like that!)
Fool’s gold
The point is capital gains tax (CGT) on gold could now be a very real issue if you bought and held gold from the lows and you want to sell.
Painful, too, given today’s much lower CGT allowances.
To quote one last time from my article of nine years ago:
Because of 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.
If you were a buyer then I hope you did so too.
Let’s recap.
Tax on gold gains
How gold is taxed isn’t a simple matter. There are always quirks with taxes.
Indeed with the UK tax code clocking in at over 21,000 pages, you could argue the whole system is one enormous quirk.
And how gold is taxed can be as confusing as everything else tax-related.
The specific tax on gold gains you’ll pay depends on:
- What form of gold you own
- Whether you have it in an ISA or a SIPP – or even under your mattress
No income tax, no VAT
What kind of taxes on gold are we talking about?
The good news for all you budding oligarchs is there’s still 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 just for 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 an investment point of view. Though hardly 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. Assuming it’s one of the few not intent on squandering every last dollar on discovering harder to process deposits miles beneath the Earth’s crust.
Lucky enough to get a dividend? It will be taxed like dividends from any other company.
Finally, there’s no VAT to pay when you buy gold bullion or gold coins for investment purposes. So no worries there, either. (Well, almost. See below.)
Weirdly, VAT is payable on purchases of silver at the standard 20% rate. Perhaps the gold conspiracy theorists are onto something?
Capital gains tax and gold
So far so good. But there’s one flavour of UK taxes you’re very likely to face with gold: Capital Gains Tax.
I’m going to assume you understand the basics of CGT. If you don’t, please go and read our quick primer and then come back ready to roll with the rest of us high-flyers…
*twiddles fingers*
Done that? Great!
So now we all know that CGT is a tax levied on the gains you make when you ‘dispose’ of – usually 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. Being legal tender makes them free of CGT.
Look for coins produced from the Royal Mint that qualify as legal tender.
According to The Royal Mint:
…all gold, silver and platinum bullion coins produced by The Royal Mint are classed as CGT-free investments.
This includes gold and silver Britannia coins, Sovereigns and the popular Queen’s Beasts range.
British gold sovereigns are typically recommended because they can be appealing to collectors as well as for their gold content. This means there’s two ways in which your gold investment can hold or increase in value when you buy coins.
Note it’s the legal tender aspect that makes these coins exempt from CGT. Not their size or handiness.
Beware this VAT trap
If a coin is bought as an 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, then it may be judged as attractive as a collector’s item – and so become subject to VAT.
According to HMRC:
It does not matter that an individual coin is of special interest to collectors, if the usual price of the coin type falls within 180% of the value of the gold contained therein, all coins of that type will be exempt.
If a coin type is usually valued at more than 180% of the gold value, because of its interest to collectors, but an individual coin is in such poor condition that it is worth less than 180% of its gold value, that coin (like others of its type) will be subject to VAT at the standard rate.
Confused? I am a bit. If you’re into numismatics – that’s the study of coins, currencies, and other payment methods – then you’ll need to do more research to see if VAT is payable on your kookie coins.
For similar reasons, don’t invest in gold via gold clocks or wedding rings (the latter for all kinds of reasons…) as you’d be potentially liable for VAT when you buy and for CGT when you sell.
But if you’re simply buying British gold sovereigns to stash somewhere safe then you’re all good.
ISAs and SIPPs and gold
Aside from coins, your best bet for sidestepping CGT on gold is to hold your gold in an ISA or a SIPP1.
But this is where it gets tricky. That’s because some ways of investing in gold that are attractive from one perspective are not so appealing – or even possible – from another.
For instance, some people want to own real physical gold, not so-called ‘paper gold’ like a gold ETF. (Or an ETC, or Exchange Traded Commodity).
They often want physical gold specifically because they are hedging against disruption or disorder to the financial system. A notional ETF holding in an online nominee broker account is presumed to be less useful than a bit of shiny metal in your hand if we head back to the Stone Age.
However unless you own a private fort to fill with British sovereigns, buying physical gold in size will probably mean using a gold platform like BullionVault or The Royal Mint2. Like this your gold is stored in a vault somewhere safe – say under the Swiss Alps.
Such gold bullion is liable for CGT. It also 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. This makes it easy to gain exposure to the gold price while shielding your investment from tax – so long as you don’t mind using an ETF.
Perks of a pension
Just to further confuse matters, some of the physical gold platforms do enable you to hold gold in a SIPP, depending on your provider.
BullionVault, for instance, works with several SIPP platforms.
It notes that buying gold through your pension could mean the government pays up to 45% of the cost of your gold, thanks to tax relief.
Doubtless that’s extra appealing to a certain kind of gold fan.
Golden summary
You’ll need to think about how to use your own tax shelters to protect your personal gold hoard from the taxman.
But here’s a handy table of how gold is taxed:
| 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 ETFs/ETCs | Yes | Yes | Yes |
| Gold jewelery | 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.
Golden rules of thumb
I’d suggest these solutions best fit various use cases:
- Owning a modest amount of gold outside of ISAs and SIPPs – investing via UK gold coins that are legal tender is best. You can buy CGT-exempt sovereigns from The Royal Mint. If you store within the Mint’s own ‘Vault’ then it can buy them back later. See its FAQ.
- Gold in an ISA – low-cost gold ETFs / ETCs are best.
- Gold in a pension – gold ETFs / ETCs again, or you could consider one of the qualifying gold bullion providers who partner with UK pension schemes. I’ve held some gold with BullionVault for over a decade. The Royal Mint is again another option.
- Owning entire gold bars like a bond villain – you’ll want direct ownership with storage in a suitable fortified bank, or else to own a certain monetary value of real physical gold with the likes of BullionVault… But again remember you will be taxed on capital gains with this option, unless you use a SIPP.
Unless you are one of our central banker readers, 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.
Golden advice
Please note I’m far from the pub bore on gold. Also I’ve never held gold in a pension scheme. (I read up on it for this article.)
Do your own research and take professional advice if needed. Avoid putting money into a dodgy scheme, or investing your pension into something that ultimately hits you with a tax bill.
On the other hand, if you’re an expert on the minutia of investing in gold, then hands-on tips in the comments below would be appreciated.
(Note: Financial conspiracy theories or advice on getting out of fiat money before the great riots of 2033 are not really our thing on Monevator, thanks.)
Watch out for costs with gold
Finally do remember that while taxes can severely reduce your returns, so can plenty of other things.
In the case of gold, that could include high dealing costs, ongoing storage costs, insurance fees, and even theft.
Oh, and the risk you might decide to sell all your equities and even your house to buy yet more gold because you think Britain is going bankrupt. (People can go crazy about gold.)
Creeping costs
As usual, it’s over longer time periods that the smaller charges add up.
Let’s say storing gold coins costs you 1% a year versus 0.25% in annual costs for a gold ETF.
Let’s also suppose the gold price delivers an annualised 5% a year gain over the next 20 years.
You decide to split your £20,000 investment in gold between gold coins and a gold ETF in an ISA, like any good risk-averse investor.
After two decades:
- The £10,000 in gold coins is worth £21,911
- The £10,000 in a gold ETF has grown to £25,298
Quite a difference! Enough to eat into a chunk of the CGT savings you’d get from going down the coin route compared to the ISA-and-ETF option.
To be sure this is a simplistic example. The figures are all illustrative. And in reality the costs for storing gold coins probably wouldn’t compound at the same rate as the price of gold.
(Also you can’t ‘clip’ gold coins to pay your fees, so those fees might have to be paid from money from outside of your gold hoard. That could alter the maths).
But you get the picture.
Also, 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 deep below Mayfair. If you do then by all means squeeze a few bars of gold into the space behind Aunt Agatha’s tortoiseshell sideboard and cut your costs.
Equally, if you’re a daredevil risk-taker happy to hide your gold coins in a biscuit tin beneath your aquarium, then you can escape storage costs altogether. Few would recommend it though.
Costly trade-offs
Note that trading costs are chunky for some forms of physical gold investment.
That’s because – unsurprisingly – people who buy gold want to know it’s really gold, not just foiled-covered chocolate coins.
It costs money to get gold verified3 which means higher turnover costs.
Alternatively you can keep gold in a so-called accredited facility, some of which I’ve cited above. This way the gold never moves, so its authentic status remains intact. But then we’re back to higher storage costs.
Gold and tax: the takeaway
Think about how gold is taxed, how long you intend to hold it, and in what circumstances you’d want to get at it.
That way you can best decide on the most tax-efficient investment method for you.
Perhaps the best thing to do, as usual, is to diversify your gold across a range of different forms and platforms – particularly if you’ve got a large portfolio to manage. Not least because tax rules can change.
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 will continue to build my own gold hoard – though I’m in no rush!
Note: This article is about how gold is taxed. It’s not about how politicians could confiscate it all if they wanted to. Or how ETFs are as bad as shares compared to a solid coin in your hand. Nor about how anyone who doesn’t swap everything for gold is going to die a pauper, nor about Bitcoin, nor about how Warren Buffett thinks you’re an idiot if you buy one ounce of gold. Please keep comments on-topic. Again, the BullionVault links are affiliate links. I may get a small bonus from any new signers – but it doesn’t cost you anything. It’s just a marketing cost to them. Hoard safely now!
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.
@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/
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
@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.
Yup, it’s over a year since I encountered a gold bug, so it might well be time to buy.
@ TI – Thanks, I was not sure if some of the ETCs might not be physical.
@gadgetmind — Complete disinterest in this post on Twitter. Another sign!? 🙂
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.
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.
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.
The problem with rebalancing on peaks and troughs is that these can only be seen in the rear view mirror.
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)
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!!
@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!
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! 🙂
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..
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!
> 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.
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.
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
@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 !
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!
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
@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.
@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).
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.
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.
@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.
Gold + yield (GLDE ETP, OCF 0.35%) might be an option for holding in ISA/SIPP to shelter from both CGT & IT (disclosure I own):
https://www.etfstream.com/articles/why-combine-gold-and-yield-in-an-etp
How about storing the gold _in_ the fish tank, under the sand? If you are paranoid you then keep piranhas…
> This makes it easy to gain exposure to the gold price while shielding your investment from tax – so long as you don’t mind using an ETF.
Ha ha bloody ha – unless you decide to kick this stuff out of the ISA into the GIA. Because: no income, and back in the day income was favoured in the ISA. Plus point I bought VWRL with the proceeds. Minus point is the ISA is 10% less higher than it would have been otherwise and the CGT allowance disappeared down the toilet. Well done me 🙁
Still, at least SGLP is hopefully not going to have a corporate event so I can drift this out over many years. Or the pound may rise reducing the apparent gain. and everything will cost less in GBP. Well, you can dream…
@DH #29 I like the idea of GLDE, thanks for the pointer. Need to think if some of this is what I want of gold, but interesting.
Re GLDE it’s quite funky. I bought a small amount in the ISA to see how it tracks SGLP, which I have a bit more in the ISA bolting the stable door etc. I will be able to see the difference as SGLP has minimal return on purchase at the mo. Can’t buy it in iWeb.
I bought in the HL ISA as under tax and legal reporting status it says pending. I also had to go through the CYA questionnaire which said roughly “this is a sophisticated product having zero connection with the underlying asset, it is all smoke and mirrors and can disappear under market stress like summer rain”, and if you fluff it you have to wait a day before having another go. Here be dragons, though of an interesting sort. Not one for the GIA, however
Thanks for the GLDE idea @DH, interesting answer to the absence of income and I guess tactically appealing in the context of the current price as a more defensive way to play gold.
Along similar lines I was looking at the new(ish) LSE listed variants of JEPI and JEPQ as a possible means to pivot some US equity exposure to a more defensive stance, and one that would generate returns if the consequence of US valuations is that equities go sideways.
I think these various covered call ETFs coming onto the market are a welcome product innovation given the difficulty of writing options directly, I could never find a viable way personally, I don’t think it’s allowed in an ISA and IBKR appeared to be the only broker offering the capability in a SIPP but wouldn’t let me do it however many knowledge tests I passed and the tax reporting headache put me off doing it in a GIA not to mention the option premium taxable as a capital gain is now rather more inefficient post budget.
I hope a better range of put writing ETFs will also follow
1 oz Britannias are a good way to own gold tax-free without using ISA and SIPP allowances. The Royal Mint is just too expensive, they charge 5% or more over spot price. My dealer in Germany (solid, well-established, with both online and real-world shops) offer Britannias at <2% over spot on occasion. I think that's a fair deal for saving CGT plus some doomsday insurance.
I don’t hold any gold investments in my ISA but I do have a quantity of “scrap” gold, broken jewellery, dental gold (unused and used) which I am about to take to one of the dealers in London. I had not considered CGT so thank you for this post.
@Sparschwein — Can you give us more insight with provenance / assaying / whatnot with Britannias (and Sovereigns if you know anything about them). Do people just ‘know’ they are real and so there’s a liquid market that trades +/- around some benchmark? Or if I turned up at a dealer with a bag of Britannias do they need to test them all?
I’m thinking versus keeping them in value with say The Royal Mint or Bullion Vault, so this provenance isn’t questioned when it comes time to sell. Have known friends who buy coins but have never done so personally, despite reading about it for decades!
@all — Cheers for additional thoughts!
Does anyone know, if you inherit gold jewellery, what is the acquisition cost for CGT purposes? The jewellery was valued for probate, so at first sight this would seem to be the appropriate acquisition cost. However, when getting a jewellery valuation performed, the valuer needs to know if it is for probate or insurance purposes, with probate valuations being lower. It is this difference that makes me wonder if CGT rules specify any different approach to assessing capital gains on jewellery.
@TI Bullion Vault don’t seem to do coins, and indeed have the deathless claim in their FAQ
Yeah, right!
@DavidV. My understanding is that jewellery is considered as ‘chattels’ when sold. HMRC has some guidance on when proceeds fall into the purview of CGT. The issue is relevant for those wanting or happening to hold gold in the form of jewellery or watches and perhaps The Investor would consider looking into it the next time this article is updated?
@TI – the main office happens to be close to where family lives, so I usually pick up my stuff in person, obv check by eye and weight and otherwise take it on trust. I’ve always bought new, never second hand.
I’ve recently sold them back some bars to beat the CGT increase. They checked each bar on a small handheld device, which takes a few seconds and the bar remains sealed in its blister. They paid 1.9% below spot, so my roundtrip transaction costs for the bars were <3%.
I haven't sold any coins yet (and don't intend to anytime soon). I like the simple 1 oz denomination, and the Britannias have some features that should make them harder to forge than bars. Their current buy/sell spread is ~2%, see the small box saying "Unser aktueller Ankaufspreis" here: https://www.anlagegold24.de/1-oz-Gold-Britannia-2025.html
@TI for those in/near London there are plenty of places in Hatton Garden that trade coins. I’ve bought from Baird &Co (a dominant precious metal refiner) as a walk in customer (quite a long time ago now, mind) https://www.bairdmint.com/. I’m sure they’d talk you through the process of selling back to them.
@Sparschwein @Nearly There — Thanks for the extra detail. I’m happy with my ISA-d ETFs and (vastly diminished for non-asset specific reasons) BullionVault operations but I can see a time in the future where I might want a few legal tender coins in the mix.
With a hat tip to @AoI #33 above, and in order to avoid going off topic re gold, I’m going to post something on the European-listed equivalent to the US-based JEPI ETF under the March 2024 Maven piece: “What to do if you’re queasy about the US stock market?”