GOING FOR GOLD
As gold prices hit new highs, is now the time to invest and will you make a profit?
Experts explain how to invest in gold and what the risks are
GOLD prices hit a new high this week, which has meant investors are now racing to buy the precious metal.
The price of gold hit a fresh record of $2,531.60 (£1,943.83) an ounce on Tuesday afternoon after rising by a hefty 1% during the day.
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Gold bars usually weigh 400 ounces (12.4kg), which means a standard bar is now worth more than $1million (£766,505) for the first time.
As prices rise, many people will be wondering whether now is the time to get involved.
So, should you consider buying the precious metal? And if so, how do you go about it?
We asked experts what is pushing up the price of gold and how you could get in on the action and make a profit - here's what they said.
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Why are gold prices rising?
Gold has a limited supply, as extracting it is very expensive and time-consuming.
Its price depends entirely on supply and demand, but because the supply of the yellow metal is relatively limited, the price is mostly based on demand at any one time.
Gold is also seen as an asset which holds its value.
This means that investor demand for it - and therefore its price - usually rises when financial markets are struggling.
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One of the main reasons that gold prices have surged over the past few days is because of the expectation that the US central bank will cut interest rates next month.
Central banks such as the Bank of England and US Federal Reserve oversee the monetary policies of the UK and US, respectively, helping to provide financial stability.
Interest rates are set by central banks to control the rate of inflation, which is a measure of how much the price of items including food, energy bills and fuel increased by over the past year.
While it's not guaranteed, experts say gold prices tend to rise when interest rates fall, and vice versa.
According to the World Gold Council, this is because when interest rates rise, it's often an indication of a thriving economy, which gives investors the confidence to buy stocks.
But when rates fall, that can be an indication that the economy is struggling, so investors flock to "safer" assets like gold.
But is gold actually a safe investment?
Sarah Coles, head of personal finance at financial services company Hargreaves Lansdown, says gold is considered to be a safe investment during turbulent times.
Some reasons for this include because it's rare and durable, and it also has real world uses such as for jewellery.
"Gold is considered to be a 'safe haven', so is used when speculators and central banks are worried about the general political, or economic environment,’ she explained.
"This is why demand has boomed since the Russian invasion of Ukraine and tensions have risen in the Middle East."
There are also tax advantages to owning gold, depending on how you buy it.
For example, if you buy it as coins from the Royal Mint, which makes the UK's cash, then it is classed as legal currency and is exempt from capital gains tax.
Usually when you sell an item that has increased in value you need to pay capital gains tax on the profit.
Capital gains tax starts at a rate of 10% for basic rate taxpayers, but is higher for those paying higher or additional rates of income tax.
Are there any risks?
Although gold is considered to be a safe haven during times of uncertainty, there are lots of factors which can impact its price.
Supply and demand, the state of major economies around the world and political uncertainty or war can mean that the price of gold fluctuates, making it a more volatile investment.
For example, the price of gold fell by $80 an ounce in just six hours last month after Chinese central bank the People’s Bank of China did not buy any bullion for its official reserves.
Although gold is less volatile than shares during times of unpredictability, it can give you a lower return than other investments when the stock market "rallies", which means the price of stocks and bonds go up.
It’s always a good idea to hold gold alongside other types of investments, such as shares, bonds, property and cash, to help spread your risk around and give you steadier returns.
You should seek professional advice if you are unsure whether investing in gold is right for you.
A financial adviser will be able to figure out how much risk you can afford to take and how much to invest. You can search for an adviser on websites like Unbiased.co.uk.
Make sure you have enough money in savings before you consider investing so you can pay for everyday emergencies, for example if your car breaks down or if you lose your job.
A good rule of thumb is to have at least three months' worth of your salary saved for a rainy day.
How can you invest in gold?
There are several ways to invest in gold, but the most common way is to buy bullion coins and gold bars.
These can be bought through the Royal Mint or from registered gold dealers such as Baird & Co or Atkinsons Bullion.
Although this can feel like a reassuring investment as you can hold them in your hand, they often have a big difference between the cost to buy and how much you can sell them for.
For example, some companies have a 15% difference between the retailer price to buy and sell gold coins, which does not include the VAT due for selling a precious metal.
It’s also important to consider how you will store your gold once you get it home suggests Adrian Ash, director of research at gold retailer BullionVault.
‘You need to securely store and insure your coins or small bars, adding extra stress, hassle and costs, he says.
"You then face additional friction, hassle and costs when you want to sell, having to “shop around” for a price just like you should shop around for the best price when you bought."
Another option is to buy a bullion-backed Exchange-Traded Fund (ETF).
This is where you buy shares in an investment fund which is made up of gold bullion assets.
One of the advantages of bullion-backed ETFs is that they give you the ability to buy and sell your shares through a stockbroker, who may be able to offer advice on your investments.
Often bullion-backed ETFs have low storage costs, which could be cheaper than installing a safe in your home or upgrading your home insurance if you keep gold bullion at home.
However, buying gold through an ETF also comes with its own challenges, Mr Ash said.
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"In turning gold into paper, ETFs use complex legal trust structures and your trading is restricted to stock-market hours.
"Geopolitical, financial and economic crises all too often break overnight or at weekends."
How to start investing
BEFORE investing you need to be aware of the risks, as unlike cash, what you save can go both up and down.
This means you can be left with less than what you started with.
And if your investment performs poorly, you're not protected for any loss by the Financial Services Compensation Scheme (FSCS) which covers cash up to £85,000 per financial institution.
Although if the firm you’ve invested with is regulated in the UK, you may still be able to use the FSCS to claim if the company itself fails.
There are of course ways to reduce the risk of investing - for example you could opt to invest in cheaper so-called "passive funds" that track the fortunes of various stock markets, such as the FTSE100 or FTSE All Share indices.
Investing in actively managed funds - that pool different types of investment together - is also less risky than just investing in individual companies, known as shares. This is because you're spreading your risk across a range of companies or other types of investment, such as bonds or property.
Robo-investing - where a computer determines what you should invest in based on a questionnaire of your preferences - also comes with lower risk as it's spreading your investments.
If you feel confident, you can start investing by setting up an account on an investment platform - a sort of supermarket of different investment products. And you can do all of this within a Stocks and Shares or Lifetime Isa wrapper. Do check the fees first - both for the platform and the individual investments themselves.
If you're unsure, you should always seek professional advice - you can use comparison services Unbiased or VouchedFor to find a suitable financial adviser.
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