Thinking of buying gold, the real deal, not a derivative? Probably the first thing that springs to mind is The South African Krugerrand quickly followed by the thought on how the heck you are going to securely store the stuff!
What to Buy?
You can buy gold in various ways including bars/ingots, coins, nuggets and jewellery. Carefully consider your options, yet when considering it as an investment, coins will probably be a good start as these are pretty liquid. In terms of coins you have the following options:
- The South African Krugerrand is the worlds most commonly traded gold coin. Krugerrands are 22 carat gold coins that contain exactly 1 troy ounce of fine (24 carat) gold. In 1980 South Africa introduced three smaller Krugerrands being the half troy ounce, quarter ounce, and tenth ounce.
- Another interesting one is the sovereign or half sovereigns, also known as Britannia coins. Sovereigns are particularly interesting to UK buyers as they are still legal tender, meaning they are VAT exempt, stamp duty free and there is no capital gains tax (CGT) due on future profits.
For most traders the Krugerrand and the Britannia are probably the most practical options. Yet there are several other well established coins out there which include the Canadian Gold Maple Leaf (since 1979), the Australian Nugget (since 1981), the Chinese Gold Panda (since 1982) and the American Gold Eagle (since 1986).
Where to Buy & Sell?
There are many places you can get your shot of gold which include bullion dealers, cash for gold outlets and in some places even vending machines are spitting out gold ingots. Of course there are also hundreds of online gold stores. Most vendors are also gold buyers, some fairer and pickier then others. There are three online stores that stand out:
Bullion By Post is the UK’s No.1 online gold bullion company. It offers a rich range of products including gold, silver and palladium coins, ingots and nuggets. Another UK one is Bullion Store, which guarantee to sell at the lowest available market prices. APMEX is the leading bullion company in the U.S. All the above both sell and buy gold.
Some Things to Consider
- Buying bars (or ingots) can look like better value for money (smaller spreads and premiums) especially when bought and sold in larger quantities. On the downside they are less liquid/tradable as you have to cash in the entire bar, which at the time writing equaled about US$ 40.000!
- Coins are usually traded at a premium of the gold spot price (usually 5-10%). Upon a sale they are usually exchanged at 97-98% of the face value. This means you should factor in a price rise in excess of 12-13% to breakeven and start churning a profit…
- Consider that gold coins purchases are subject to VAT to most buyers together with a potentially hefty CGT bill in the event of a sale. Gold coins again come handy here, as you may be able to make use of CGT allowances.
There are many investment strategies which could help you guide your approach to gold and ultimately how you manage your gold holdings. Kevin O’Leary, yes the venture capitalist featured on Dragons’ Den, shares his gold holding strategy in the interview below.
Also check what Warren Buffet has to say about a gold. He has a very outspoken view and clear way of explaining his thinking.