Gold has been used in commerce for hundreds of years and continues to be the asset that many investors turn to during times of economic turbulence. This is why the price of gold often surges during recessions as people begin to pull out of stocks and shares, moving their cash into gold instead. 

Like all investments, there is a risk that your investment could go down as well as up, so it’s important to bear this in mind when you buy gold. 

If you’ve already invested in individual stocks, mutual funds, and exchange-traded funds (ETFs), you’ll find some of the methods of buying gold quite familiar. However, there are some new methods that you may not have come across before. 

It’s therefore important to find the option that best meets your investing objectives.

Why Would I Invest in Gold?

Along with silver and platinum, gold is a precious metal. It is naturally occurring and has a limited supply, making it rare. It can be (and often is) used in manufacturing since it doesn’t rust and is a good conductor. It’s also used to make jewellery, which is where most people are likely to see it in their everyday lives. 

Its usefulness and rarity make it valuable. Because a finite amount of it exists, gold does not get devalued like money. Therefore, over time gold will typically be worth more than cash in the bank (unless you get a good interest rate). 

For this reason, many investors argue that gold should form part of your investment portfolio. 

Key Things to Remember When Investing in Gold

Before you invest in gold you need to be satisfied you understand the ins and outs of the metal, including:

  • The gold price fluctuates just like any other investment
  • If you own physical gold, you don’t earn any dividends so the only way to gain from gold is by selling it for more than you paid for it
  • The supply is finite, but increases in the price of gold will make mining in more difficult areas economically viable. If this happens, the supply of gold could increase
  • The purity of gold in jewellery is measured in karats. 
    • 14-karat gold means 58% pure gold
    • 18-karat gold means 75% pure gold
    • 24-karat gold is 100% gold
  • Just because you own gold stocks, doesn’t necessarily grant you the right to take possession of the physical metal
  • If you buy physical gold and don’t want to store it at home, you’ll likely incur a cost
  • You don’t enjoy the benefits of compound interest with gold

If you’re unsure about whether gold is a good investment for you, then you should speak to a financial advisor. 

The Options for Investing in Gold

Like other asset classes, there are several ways that you can invest in gold. Some are similar to stocks and shares, while others are unique to precious metals. This can make investing in gold a little more confusing. However, it’s quite easy to get your head around.

When investing, you will likely want to look for:

  • Methods of buying gold with the lowest fees
  • Gold investments with low spread
  • Gold sellers that are trusted and reputable
  • A reliable way of selling your gold
  • Tax-efficient way of buying gold

1. Gold Mining Companies: Individual Stocks, Exchange-Traded Funds (ETFs), and Mutual Funds

Instead of buying the actual gold, it’s possible to invest in gold mining companies. Doing so gives you exposure to the changing commodity price, although not necessarily directly. This is because mining companies will make profit according to their own operating efficiencies and not just the price of gold itself. 

Just like when buying shares in other companies, you can purchase shares of ETFs and mutual funds. These will spread your risk over multiple gold-related businesses, instead of just a single company.

When looking at these, always check their fees and exactly what types of asset class they’re buying. 

Pros of Buying Gold Mining Companies

  • They pay a dividend as well as provide an opportunity for capital growth
  • They can be freely traded through most brokers

Cons of Buying Gold Mining Companies

  • You’re not necessarily getting direct exposure to the price of gold
  • Fees for actively managed funds may be high
  • There are usually trading fees charged by many brokers when buying and selling shares, ETFs and mutual funds

2. Exchange-Traded Commodities (ETCs)

The next option is to buy shares in exchange-traded commodities (ETCs). These are like ETFs, but they buy physical gold instead of shares in companies. This also means that they can usually be held inside an ISA or pension, giving you certain tax advantages. 

The funds themselves typically have low fees, with some as low as 0.19% per annum, putting them on part with some index-tracking funds. 

Be careful with which ETC you buy though as some use derivatives instead of actually buying the gold. This can track the value closely in the short term but results can vary in the longer term. 

The downside is that buying ETCs (and other shares) can incur trading fees from many brokers. This is usually around £10 and can really eat into your investments. For example, if you invest £100 and lose £10 in fees, you’ve actually only bought £90 of gold. Gold would, therefore, need to rise by 11% just for you to break even. 

Thankfully, there is a way we can get around some of these fees (which we’ll get to later). 

Pros of Buying Gold ETCs

  • They often come with low management fees
  • They can be freely traded through most brokers
  • You don’t need to worry about storing the gold yourself

Cons of Buying Gold Mining Companies

  • You don’t usually receive dividends
  • There are usually trading fees charged by many brokers when buying and selling ETCs

3. Gold Coins

Gold coins have been minted for centuries and they continue to be a good way to invest in gold today. They remain legal tender in multiple countries, including the UK, although you wouldn’t want to actually spend them.

A British gold sovereign has a face value of £1 but it contains more than 7oz of gold, worth several hundred pounds. 

Other gold coins that you can buy include the Canadian Maple Leaf, the Mexican Gold 50 Pesos, the Australian Kangaroo, the American Eagle, and the US Mint 24K Gold Buffalo. 

In the UK, gold coins are not subject to Capital Gains Tax which means you can avoid paying tax on any profit you make from selling them. 

However, there are fees you need to consider when buying gold coins. Brokers will typically charge you a purchase fee, a selling fee, and a storage fee. These fees can be around 0.5-5%.

You could also keep hold of them yourself, but you’ll likely need to take out special insurance and/or pay for strong security equipment. 

In the UK, The Royal Mint is a trusted place to buy gold coins.

Pros of Buying Gold Coins

  • You can take physical possession of the gold yourself
  • Gold coins are exempt from Capital Gains Tax in the UK

Cons of Buying Gold Mining Companies

  • You don’t usually receive dividends
  • There are usually trading fees charged for buying/selling/storing gold

4. Gold Bars

Gold bars are similar to buying gold coins, although they not exempt from Capital Gains Tax. They come in a wide range of different weights from 1 gram all the way up to 250 kg. This makes them great for people looking to invest large sums as the value can be stored in a small area. 

You can often buy gold bars from the same places you can buy coins. 

Pros of Buying Gold Coins

  • You can take physical possession of the gold yourself
  • Larger gold bars can be very expensive

Cons of Buying Gold Mining Companies

  • You don’t usually receive dividends
  • There are usually trading fees charged for buying/selling/storing gold

What’s the Best and Cheapest Way to Buy Gold?

Obviously, the answer to this question will always depend on your individual circumstances. However, there may be a way to buy gold cheaply, from trusted and reliable sources, in a tax-efficient manner.

Suitability and disclaimer: This method is likely suitable for retail investors that looking to buy smallish amounts of gold and that don’t already have huge investments outside of their ISA or pension. Circumstances are going to be different for everyone, so it’s important you are 100% certain of your position and/or you speak with a financial advisor. 

With that out of the way, here’s how we’ve been buying gold.

Buying gold ETC with no fees

Our usual stocks and shares ISAs are held with Hargreaves & Lansdown due to their wide selection of funds and easy monthly investing. For index-tracking funds, this is the cheapest route we’ve found. However, for buying gold, it’s not so great. 

HL charges just over £11 per trade, meaning a regular purchase of £100 a month will take more than 10% of your capital away in fees. Those sorts of figures make investing unprofitable. 

Buying gold through Trading 212

However, Trading 212 doesn’t charge fees when buying stocks, shares, or ETFs. They also offer an ISA, but since you’re only allowed one, we can’t open another. We can invest outside of an ISA wrapper though.

Which ETC to buy gold with

The iShares Physical Gold ETC has a GBX (British pennies) denomination, meaning no currency risk. It also charges low fees (0.19% per year at the time of writing). 

There are some others with similar fees. They’re likely just as good, but we chose this one. 

If we sell the gold, we could be liable for Capital Gains Tax. Except, there’s currently a personal allowance of £12,300. This means we could make £12,300 of PROFIT on the gold before we have to pay tax. 

We’d need to sell a lot of it to be liable for it, so when only buying small amounts we’re likely going to avoid paying tax on it.