Gold has endured centuries as a mark of PHYS01_Animated_Gif_2_MPUwealth and the many benefits of gold begin with its simplicity. It is indestructible, relatively scarce and cannot be manufactured. It is a refreshing alternative to the complex investment products in the headlines today and is easy to both buy and sell. Infact gold is so simple it really is the one true global currency, that can be traded everywhere worldwide.
The gold price is still considerably lower than its previous high, back in 2011/12. This provides the opportunity to buy significantly more gold now, than 5 years ago, for the same amount of money.
There’s a finite supply of gold in the world, which creates exponential price rises when demand increases. Production cannot simply rise to meet increased demand, so the supply/demand dynamic naturally drive prices higher. This also reduces the risk of devaluation, as lower prices then quickly attract more, new demand, which will once again fuel price increases.
One of the most popular benefits of gold is that it’s deemed to be a safe product, which investors have always turned to, in times of economic downturn. Its performance is apolitical and therefore independent of any one country’s policy agenda. It’s therefore perceived to be a hedge for anyone at risk of losses to their property value, ISA, stock portfolio, bonds, pension and also cash due to the effects of rampant inflation.
What can we learn?
History tells us that the financial world moves in cycles. In a period when one asset class performs well, another may yield losses. It is impossible, and far too risky, to try to call these exact cycles, by placing all your hard-earned money into one investment area. Instead, any Independent Financial Advisor (IFA) will recommend spreading the risk across the various asset classes, shifting the percentage of each holding according to the current economic conditions.
This way, an investor always owns a variety of assets, so any falls in one area will hopefully be offset with a different asset, producing good returns over the mid-term and maintaining balance. Owning physical gold actually reduces the overall volatility of a portfolio. In these current, uncertain times, experts believe up to 20% of holdings should be in gold, with perhaps 5-15% in better economic times.
In its physical form, the holder has no risk to any counterparty. This is particularly relevant in today’s new financial world, where the money is no longer even safe in a bank account. It also avoids the counterparty exposure that exists with investments in gold stocks, futures and options, which all have potential fraud risks.
There are also great benefits of gold in its physical form. There’s no VAT to be paid on investment gold. Also, unlike many other investments, there’s no Capital Gains Tax to pay on profits of UK Sovereign and Britannia coins, as they’re deemed to be legal tender. Tax relief of up to 45% is available on qualifying gold bars as part of a pension.
Gold is an internationally recognised, and trusted, form of exchange and has been since ancient times. Therefore, the worldwide network of dealers can provide prices 24 hours a day for both coins and bars. In order to enhance liquidity, investors should invest in smaller and flatter gold bars. These can be easily sold to fuel short term-liquidity, which may be required for investments in other asset classes. For example, a one ounce American Gold Eagle coin is a very liquid asset as there are usually a lot of buyers and it is easy to sell.
That’s not all….
While many people consider gold as a commodity, in recent times it is being labelled as a currency, as well as a hedge. While the popularity of stock markets has increased manifold, markets are very sensitive to every kind of macro-economic impact. Markets react to global incidents, such as political instability, terrorist attacks, etc. It is often said that markets defy logic at times and move only on emotion. Gold has a low correlation with the stock market and is therefore somehow insulated against market movements. True, gold can never go up in a sudden blaze of glory like a technology stock, but it is this lack of volatility and steady growth, coupled with liquidity that makes gold attractive to investors.
More than just a valuable investment, gold coins are part of the nation’s historical heritage and can be both beautiful and collectable. In fact, many gold investors and collectors take great pride in their coin portfolios, often preserving them within their families for several generations. This habit also contributes to limited market supply, creating a numismatic premium and once again affecting gold’s value!
Investors worldwide are nervous about a possible new global banking crisis. The very fundamentals of banking have changed forever, with the perception of strength and safety now a thing of the past.
Several of our large high street banks are now partially nationalised. With interest rates and therefore savings rates, at all time lows, returns on bank deposits are negligible or even negative. Simply saving money in deposits is no longer the safe haven it once was.
What’s the story?
Trust and faith in numerous major world currencies are at an all-time low. Concerned savers and investors are seeking a new, more reliable store of wealth and many have turned to gold. Simply leaving your savings in the bank and burying your head in the sand will not safeguard the value of your money. Proactive savers are now moving some of their money into gold, to reduce their exposure to traditional currencies.
Yet another factor to consider is the effects of inflation. Inflation slowly, but surely erodes the value of cash in the bank. Interest rates are at an all-time low. They have remained stagnant for the longest period in the UK’s financial history, as the economy struggles to stabilise. It is likely to remain that way for some time now as the Bank of England staves off imminent interest rate hikes year after year. The UK’s GDP growth is a dismal 0.4% and the economic uncertainty surrounding Brexit does little to help the situation. In this scenario of doom and gloom, inflation will eventually erode cash in the bank. Gold, on the other hand, provides investors with an excellent avenue to hedge risks associated with the slowdown of the economy. The Spot price of gold has steadily increased over the last ten years and it makes sense for investors to invest more in gold to escape the doldrums of the current economic situation. Moreover, there are fears of the US dollar performing badly in the coming year against the Euro and the Japanese Yen. Should such a scenario occur, we would surely witness a gold rally in 2018 as investors scramble to pull out of currencies and park their money in alternative asset classes. Gold, given its stability, would be the obvious choice, as would silver, which tends to mirror gold price movements.
As the gold silver price ratio is 80:1, silver is a far more affordable investment vehicle for an investor wishing to park funds in precious metals. Therefore, an investor can purchase a substantially larger quantity of the metal when compared to gold. If we compare the prices of the two metals, we realise that an investor can buy a kilo of silver for under £500, but the same quantity of gold would cost more than £30,000. This is an important factor that has enhanced the popularity of silver as an investment vehicle. It is affordable to small and medium-size investors and buying and selling of silver is easy, with a published spot price and no haggling needed!
Fundamentally, silver investments have performed New call-to-action
well over the last ten years. Silver has delivered positive returns over the last ten years. In 2011, silver reached a spot price of $48 per ounce, on the back of investors pouring money into the commodity in an effort to escape volatility in the financial markets. Therefore, we can see that silver like gold, isn’t just a commodity. It acts as a currency in its own right and provides investors with an effective route to hedge against market risks. Silver has also historically tracked gold over the years and is an important factor in increasing its attractiveness to investors. Silver has a good outlook for 2018, making it an attractive asset class for investors. Both gold and silver are expected to appreciate in the New Year as investors want to hedge away from risks associated with the falling dollar, the threat of crypto-currencies and traditional companies being overtaken by new and innovative industries.
Most asset classes, including stocks, crypto-currencies, bonds, futures, cash in bank accounts, etc. are all traded through electronic exchanges over computers. This opens up the risk of cyber-crime as hackers grow smarter and more daring each day. Virtual accounts can be raided, exchanges hacked and viruses released to destabilise investors. However, physical assets like real estate, gold and silver are proof against the risks of a cyber-attack. This is an important consideration when diversifying your investment portfolio and indeed, one of the objectives of diversification is to reduce risk. Investments in precious metals can, therefore, fulfil this objective too and it’s yet another reason to hold silver as part of your portfolio.
Buying silver coins or bars, separates that portion of your wealth from the banking system and protects it from the various counterparty risks posed by the financial institutions.
As with gold, one of the major benefits of silver is as a safe haven. With huge levels of Sovereign debt and paper money printing, traditional currencies have devalued significantly. Physical, precious metals such as silver, should be considered as an alternative store of wealth. Political unrest in various global regions threatens the stability of investment markets, leading to many investors purchasing precious metals, to protect their portfolio capital values.
Due to the safe haven nature of precious metals, silver can provide essential hedging and balance, to a mixed portfolio of assets. An allocation of silver may enable an investor to increase their risk appetite in other asset classes, whilst balancing the overall portfolio risk. Owning silver physically, in the form of bars or coins, provides additional diversification from traditional paper assets, which have recently been threatened by the global downturn.
Back in 2009 silver prices rose by an astonishing 184% as investors sought refuge from the financial crisis of sub-prime lending of 2008. This backs up the theory that in times of economic adversity the price of silver (and precious metals in general) holds up well. In several of its applications – such as medicine and photography – the silver actually expires after usage. This means that the total amount of silver available in the world reduces each day. With increasing global demand, it’s easy to understand why the potential for capital growth in silver is significant.
Silver coins are extremely collectable and make an ideal family heirloom to pass through the generations. Investing in silver coins such as the American Eagle, Silver Britannia, Silver Kookaburra and other coins from around the world add interest to an investment portfolio.
Usually, physical silver attracts VAT, but we offer opportunities to buy silver bars and coins, FREE from both VAT and Capital Gains Tax.