Jul 13 • 10M

How to buy gold

In the UK, Europe, the US and Canada

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Dominic Frisby
Make money and stick it to the man!
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At present, I’m probably getting asked this more than anything else. “Should I be buying gold? How do I buy gold?”

We have inflation, war, political discontent and financial instability, so I’m not surprised many are asking. Even if the gold price is stagnant, the case for owning it, for having wealth stored outside the system, is as strong as it has ever been.

So should you be buying gold?

The old Wall Street adage applies: “Put 10% of your net worth in gold, and hope it doesn’t go up.”

Thus today’s piece, which comes at the request of several readers and listeners, explains how to buy gold. This is especially for those in the UK, Europe and North America.

There are five ways to invest in gold.

  1. You can buy bullion - coins or bars. 

  2. You can buy gold stored in vaults but allocated to you. 

  3. You can buy ETFs via your stock broker. These are funds that store gold, and thus the price of the fund tracks the gold price.

  4. You can buy gold companies - refiners, royalty companies, miners and so on.

  5. You can buy futures, CFDs or spreadbets. 

I’m not talking today about buying mining companies (if you are interested in mining companies, consider a paid subscription as gold mining companies are one of my areas of expertise).

Nor am I talking about futures, CFDs or spread betting the gold price. This is not safeguarding your wealth outside the financial and political system. It is speculation - and in the right market can make you a lot of money. It can also lose you a lot.

Today I’m talking about old school, physical gold

I’ll put to one side arguments about whether gold is a good investment or not (it is), whether it’s going up or down, and simply explains what is the easiest, cheapest and, perhaps above all, safest way to buy gold.

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gold and silver round coins

Which bullion to dealer to use?

ETFs are a simple way to get exposure to the gold price. Easy to buy and sell, they are favoured by institutions. You buy an ETF just as you would buy any stock. London-listed gold ETFs include RMAU.L and PHAU.L The world’s biggest is the NYSE-listed GLD. Baked into the price is usually pay a small premium to the spot price of gold, and a small annual percentage to cover storage and other related costs. But it’s not really the same as owning actual metal, so the purists veer away from ETFs.

To buy an ETF, you just need an account with a broker, such as Interactive Investor. (If you sign up with them, and say I referred you - frizzers@ gmail.com - you will get a year for free and I get a referral fee).

The reason I steer away from ETFs is that they are too easy to get shaken out of. When you buy physical gold, to sell can be a bit of an undertaking, so it’s less likely to be done on a whim. Owning physical tends to turn you into a long-term investor.

In theory, there is not a great deal of difference between an ETF and the store it online with a bullion dealer route. Both are extremely convenient, for buying and selling. Both give you exposure to the gold price. But, as I say, I favour the storing it with a bullion dealer route, as it makes you less likely to sell. ETFs weaken your hands.

So where do you buy gold from? I’ve used many dealers over the years. My current recommended bullion dealer in the UK is the Pure Gold Company, whether you are taking delivery or storing online. In Ireland it’s Goldcore. Both deliver to the UK, US, Canada and Europe, or you can store your gold with them. I have affiliation deals with both.

Where are you going to put it?

Once you’ve decided where to buy it, the next question is: where to put it? Different people with different circumstances have different solutions. 

Some people have a safe at home and keep their gold there. Some keep their gold in safety deposit boxes. Others never take delivery at all, and keep it  safely stored in a vault with the dealer in sensible places like Zurich, Jersey or Singapore. 

I’m not convinced homes in our “vibrant” cities are safe, so these are not options I would take, but … I know one guy that has all his gold stored in a sock in his loft. I know another that has buried it in his garden, and only his close family know the location - he has quite a bit of land. I know another that keeps his gold and silver in plain sight - he uses the bars as doorstops. Nuts you may say, but how about this? He got burgled and the burglars didn’t take the bars. They obviously thought they were just doorsteps …

If you have somewhere safe to store it, I’m a great advocate of taking delivery. You get to handle your metal. There are lots of fantastic different coins from around the world to buy - Chinese Pandas, South African Krugerrands, American Eagles, Austrian Philharmonics, Canadian Maples, Australian Kangaroos. The bars are nice too. It’s good to handle gold. But I refer you to my above comment about cities today.

Competition amongst ETFs and bullion dealers has conspired to drive down prices, much to the benefit of the consumer. But there is one enormous cost that neither of these methods are able to avoid - tax.

Sovereigns and Britannias

When you sell, you are incurring a Capital Gains Tax (CGT) event - 20% in the UK for higher rate tax-payers and 10% for lower (CGT). So that’s unavoidable 10 or 20% cost for buying and selling gold at a profit.

There’s another method of buying gold (and silver), which, quite legally, avoids this cost altogether. There is a slightly higher premium to spot when you buy, but we are talking about a tiny amount, nothing like 20% CGT.

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Given the potential savings involved, it’s surprising that more UK investors don’t buy their gold and silver in this way. The method I’m describing, if you haven’t already figured it out, is to buy sovereigns and Britannias.

The gold sovereign used to be the pound coin. Imagine that - a pound coin made of solid gold. It was the pound coin from 1816, after the Great Recoinage, until 1932, when the UK finally abandoned its gold standard. Until then, the pound really was “as good as gold”. 22 carat gold to be precise – that’s about 92% purity. A sovereign weighs about 7gs, which is about a quarter of an ounce. 

Such is the devaluation of money that has taken place over the last three generations, it now takes about 300 pound coins to buy an old pound coin.

Despite no longer being on the gold standard, the Royal Mint began producing sovereigns again in 1957 and continues to the present day. A large number of them are actually minted in that well known British heartland, Delhi. (That’s because there is a huge market for them in India).

Technically these coins are legal tender, so they are exempt from CGT. 

A selection of sovereigns

As sovereigns are so common, the numismatic value is very low. You can pick up 100-plus-year-old Victorian coins at a few percent over spot. You get the history for free.

The main exception is the 1937 sovereign struck for Edward VIII. As he abdicated, the coins were never circulated. One sold in 2014 for over half a million quid. That’s some premium.

Gold Britannias – which are an ounce in weight – only began to be issued in 1987. But they too are considered coins of the realm. Despite the fact that an ounce of gold is £1,450, the face value of a Britannia is £100. Don’t ask me how that works. I’m sure there’s a reason. But, as coins of the realm, they too are exempt from CGT.

The Royal Mint began producing silver Britannias in 1997. They too weigh an ounce. They have a face value of £2 (an ounce of silver is about £16) and are also exempt from CGT.

Sovereigns are not the most beautiful coins in the world - Britannias are nicer - but both make for a considerable saving on CGT (assuming you have made a gain when you come to sell - there’s no guarantee of that).

My current recommended bullion dealer in the UK is The Pure Gold Company, whether you are taking delivery or storing online. Premiums are low, quality of service is high. You can deal with a human being. In Ireland it’s Goldcore. Both deliver to the UK, US, Canada and Europe, or you can store your gold with them. I have affiliation deals with both.

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