buying gold - a simple question

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greatcrested
greatcrested Posts: 5,925 Forumite
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in Savings & investments
Yes - I've read recent threads on metals, bitcoins etc, and hope this thread won't degenerate into a similar....

I plan to invest in gold. A small amount, supplementing a much larger, diversified portfolio. My view is that a) share prices are currently high, may continue to climb, but could easily slip and b) gold is currently low, could continue to fall but could easily reverse up

So a cautious exposure. My question is about the best way to do so:

A gold fund spreading investment round mining companies eg

* Blackrock Gold
* Investec Global Gold
etc

or ETF holding gold directly eg

* ishares physical gold ETC
* ETFS physicalgold ETC
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  • spacey2012
    spacey2012 Posts: 5,836 Forumite
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    Collateral is king ! Hold the collateral not a bit of paper.
    Gold also is judged in decades as an average not years.
    Be happy...;)
  • safestored4
    safestored4 Posts: 464 Forumite
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    If you want to buy and own gold you have to physically hold it. The various funds that you list just provide you with bits of paper that may prove worthless if TSHTF.

    There are a number of reputable UK suppliers.
  • sabretoothtigger
    sabretoothtigger Posts: 10,035 Forumite
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    The confusing part is then that mining firms do own gold, most of it not extracted yet.
    Theres a cost to owning gold in every case, storage fees or just opportunity cost from not buying growth elsewhere

    So mining firms have perhaps the most expensive annual fees but also the cheapest sources of gold, everyone else has to buy at market rates. Many miners can even with costs obtain gold below 1000, some are near 500. The problem might be time, ETF gold is immediate and some mines can take 10 years to deliver.
    So the question is your timeframe I think, if ten years is a feasible market buy the $500 gold company.

    Also plain gold can give no income so its not an investment. Its reliant on negative interest rates and general volatility I think
  • dzug1
    dzug1 Posts: 13,535 Forumite
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    The point of gold is not primarily that you may or may not make money on it.

    It's that it's very unlikely that you will lose it all (bar someone stealing it) and will have something to fall back on in the case of disaster elsewhere
  • Glen_Clark
    Glen_Clark Posts: 4,397 Forumite
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    Just be aware that Gold has no underlying value. Its only sentiment that is stopping the gold price from crashing to almost zero, or rising further. And sentiment is impossible to predict.
    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair
  • Ologhai
    Ologhai Posts: 239 Forumite
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    Threads on precious metals often sound like religious discussions, and seem to quickly stray onto the likelihood of financial catastrophe, which can be a bit tiring!

    I would've thought that gold would probably be too valuable to be used as a means of exchange if genuine financial armageddon should occur; you'd probably be better of with a few cartons of cigarettes if you want to have a usable currency for such times! ;)

    Perhaps if you'd like to own some physical metal (rather than 'paper' gold), but don't want the risk of having it in your house somewhere, maybe you should consider Bullion Vault (bullionvault.com), Gold Money (goldmoney.com) or other similar service to own some physical metal without having to take possession of it.
  • M.Johnson_2
    M.Johnson_2 Posts: 124 Forumite
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    greatcrested wrote: »
    Yes - I've read recent threads on metals, bitcoins etc, and hope this thread won't degenerate into a similar....

    I plan to invest in gold. A small amount, supplementing a much larger, diversified portfolio. My view is that a) share prices are currently high, may continue to climb, but could easily slip and b) gold is currently low, could continue to fall but could easily reverse up

    So a cautious exposure. My question is about the best way to do so:

    A gold fund spreading investment round mining companies eg

    * Blackrock Gold
    * Investec Global Gold
    etc

    or ETF holding gold directly eg

    * ishares physical gold ETC
    * ETFS physicalgold ETC

    If your reason for holding gold is protection then why not take delivery of the bullion yourself?

    Otherwise its only as safe as all other paper investments.
  • greatcrested
    greatcrested Posts: 5,925 Forumite
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    safestored4 wrote: »
    If you want to buy and own gold you have to physically hold it. The various funds that you list just provide you with bits of paper that may prove worthless if TSHTF.

    There are a number of reputable UK suppliers.
    No. I don't have any hankering to 'buy and own' or to 'physically hold it'.

    I see this as just another bit of diversification in a portfolio.
    ETF gold is immediate and some mines can take 10 years to deliver.
    But surely a fund invests not in one mine, but multiple - presumably some fully productive and others perhaps at early speculative stage? Just as with funds in many companies?

    The point of gold is not primarily that you may or may not make money on
    it.

    It's that it's very unlikely that you will lose it all (bar someone
    stealing it) and will have something to fall back on in the case of disaster
    elsewhere
    Why? You can make money from gold - if the price rises (just as with a stock that rises). And yes you can lose money too...
    Just be aware that Gold has no underlying value. Its only sentiment that is
    stopping the gold price from crashing to almost zero, or rising further. And
    sentiment is impossible to predict.
    Just as Lehman Brothers was impossible (for most of us) to predict....
    If your reason for holding gold is protection then why not take delivery of the bullion yourself?

    Otherwise its only as safe as all other paper
    investments.
    Because I only have a tiny fireproof safe at home for documents?
    But agreed - ALL investments carry risk. Hence the desire to
    a) diversify and
    b) buy where possible at lows in price (and sell at highs...)

    I feel some responses harp back to the endless debates on bitcoins, intrinsic value, protection from armagheddon (only protection is to buy and fortify a self-sufficient island) etc

    But I'm getting closer to understanding my own question....
    I think the main distinction seems to be a fund which invests in mining companies may grow from those companies' dividend payments AND from demand for those companies' shares (which probobly reflects demand for gold), whereas ETFs depend wholly on the fluctuating price of gold for their rise/fall in value.

    does that seem accurate?
  • grey_gym_sock
    grey_gym_sock Posts: 4,508 Forumite
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    glad to hear that armageddon is off topic in this thread :)

    yes, a gold ETF will just reflect the gold price. shares in miners have a much less direct relationship to it. they are more highly geared to changes in the gold price: e.g. suppose a gold mine's production costs are $100 per ounce less than the gold price. if gold goes up by $100, its profits will double. if it goes down by $100, it won't be profitable at all. also, the mine's costs can change - e.g. energy prices, labour costs, taxation. and a miner's share price can move differently from what you'd expect from the above factors, due to supply and demand.

    for gold as opposed to miners, physical (as opposed to synthetic) ETFs are a convenient option. however, if you're not buying inside a tax shelter (ISA or pension), you might also consider buying gold sovereigns, because they're exempt from CGT (since they're legal tender) - though this is less convenient.
  • sabretoothtigger
    sabretoothtigger Posts: 10,035 Forumite
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    edited 22 November 2013 at 12:20AM
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    The simple take is mines are leveraged. They have liabilities so its more risky.
    Plain gold is more of a simple hedge. If you lend dollars at 1% owning gold makes some sense as its price would rise if dollars decline in value more then 1% per year
    too valuable to be used as a means of exchange
    we'd just swap documents of part ownership. Nobody really needs delivery so i dont see price is a problem
    But surely a fund invests not in one mine, but multiple - presumably some fully productive and others perhaps at early speculative stage? Just as with funds in many companies?
    Yes most fund would try to own a range of timeframes I guess. There is a junior gold fund that owns just the smaller companies, if price continues to decline they might never get to make a profit int ime so these are probably very cheap to buy.

    http://www.mining.com/a-look-at-gold-royalty-companies/

    Also there is royalities companies which is idea of collecting contracts or funding mines without being exposed to costs, they just promise to buy all a mine makes for a set price. That can be a great idea
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