Buying gold and silver is a lot like buying fine wine. It’s important to not only know where it comes from but also how and where it’s being stored. It’s all very well getting a great deal on a case of wine, but when you come to sell it, people want to know about its history. And unless they’re happy, you’ll end up selling it at a steep discount.
It’s the same with gold and silver.
It’s important to not only acquire it from a reputable dealer but also store it correctly. Preferably with the people you bought it from. If it hasn’t left their premises, they’ve got no reason to question its integrity. And there’s a lot of fake gold around.
You also need to think about why you’re buying it.
If, for example, it is for insurance, then having all your gold in once chunky bar worth say $30,000 may not make a whole load of sense. It may be ok if you want to buy a car, but not if you just need some petrol!
In this case, you may want to think about buying some gold and silver coins. If the worst happens and you have to use it, at least you’ve got it in denominations that you can use.
Your local petrol station are unlikely to be able to chop off some of your gold bar!
Buying Gold and Silver Coins
Before I kick off, let me be crystal clear about something – I’m not a doomsayer.
But right now – and remember, investing is all about timing – I think there is less risk of holding gold than not. Think of it as a store of value rather than an investment.
You can’t print gold, it’s expensive to find and genuinely rare, so I’d encourage you to think about how you want to access the market.
Personally, I like the miners, because of the leverage they offer But having some coins may also be sensible.
Here are a few other things to think about if you decide to go down to coin route:
- What to buy?
I’d recommend having at least some gold or silver in lower denomination coins such as Gold or Silver Britannia’s, Gold Sovereigns or Half Sovereigns. Read on for some ideas as to where to buy some.
In the UK, silver attracts Value Added Tax (VAT), which is currently 20%. So any silver you buy costs at least 20% more than the spot price (the price you will be quoted by a dealer). At the moment, gold coins do not attract VAT.
As well as the VAT, the premium is relevant when buying gold and silver.
In the case of silver, you generally pay a much higher premium over the spot price of silver (usually over 30%). If you then add VAT, it’s not uncommon to be paying over 50% above the spot price for silver coins.
Gold is more straightforward. At the moment (November 2020), you can not only buy gold coins without paying VAT, but the premium over the spot rate should be a lot lower (around 10%).
Why Buy Silver Coins?
Having read the above, you could be forgiven for wondering why people buy silver coins. But there are a couple of reasons you should think about it:
- Good in a Crisis
Firstly, if there was ever a real crisis such as a market crash that meant either your current money was worthless or you couldn’t access it, then having some silver could be very useful.
Silver coins are worth a lot less than gold. Many silver coins are worth roughly £20 in today’s money, whereas gold coins are generally £300 or more.
In your wallet, it’s good to have a broad denomination of money. It makes sense to have £5, £10, £20 and £50 notes. So, if you want to buy something you’ve got more chance of having the right money.
It would be the same in a crisis. Imagine you want to buy some food. Paying with a silver coin may make sense, a gold one may not. Either way, it makes sense to have both.
- No Capital Gains Tax (CGT)
Secondly, in the UK, silver coins should be CGT free (please check this with your financial advisor!) and if you buy them from a reputable dealer, you should be able to sell them back if the wall of worry we’re now facing disappears.
Storing Gold and Silver
What you decide to do when it comes to storage is very much down to you. If you choose to take delivery, you need to think about both where you want to store as well as insure it. I would not recommend holding gold or silver in your house unless it’s a very small amount. Not only would this raise insurance issues but also potentially make you a target for burglers.
Many choose to keep their gold and silver with the people they bought it through. Not only do they have the right storage facilities, but they can also normally insure it at a far lower cost than you.
Even though silver is far bulkier (in value terms), the storage costs are surprisingly competitive. This is because many operators base their cost on the insurable value rather than the amount of space the metal takes up.
So although the acquisition cost of silver can be prohibitive from a premium and VAT perspective, once you own it, you should find the storage costs to be quite reasonable. For example, Bullion by Post charges £10 per month for a holding with an insurable value up to £15,385. Clearly, it depends on how much you have, but at the top end of this range your storage costs work out at less than 1% a year.
Whatever you do, make sure you know how you’re going to store your silver and gold and what the costs will be BEFORE you buy anything. Normally, the broker you’re going to buy it from will be able to store it for you, but check first.
Where Can You Buy Gold and Silver?
This is very much down to your personal choice and you must do your own due diligence. But I thought you may appreciate a few ideas. So here goes.
Like most things in life, different dealers cater to different clients. So I’ve split the types of clients into three. This is relatively arbitrary, but it should at least point you in the right direction.
Which leads me to my lower-tier: Bullion By Post
I use Bullion by Post for buying, storing and selling coins. But be aware that you may buy the coins at a small premium to the spot price as well as sell them for a modest discount (which is how they make their money).
I’ve used them before and find them to be very helpful and efficient. Although they don’t have a maximum order, if you’re thinking of deploying more than £50,000 into the sector, you’d certainly want to shop around. Having said that, I would urge you to be careful about going with the cheapest. Do some decent research on anyone before you invest.
As you’ll see from the Bullion by Post website, the smallest denomination for a UK gold coin is around £150. This is probably fine if you’re buying an airline ticket, but you could be into a spot of bother if you’re just looking to get some groceries, so think about why you’re investing.
Moving on to what I would view as the mid-tier: Sharps Pixley
If you’re looking to deploy more than £50,000 into gold (this is a somewhat arbitrary number so please discuss it with your advisor), then you may also want to consider Sharps Pixley.
Although it’s sensible to have some gold at each of these establishments, I’d say that Sharps Pixley (which is owned by Degussa – Europe’s largest precious metals dealer) are more suited to “High Net Worth” individuals. When I last spoke to them, they told me that some of their clients have bought several million dollars of gold from them.
I would classify them in the mid-tier. That’s not to say you can’t buy coins from them, you can. But I think they’re more geared towards wealthier customers.
Finally, the high-tier: Gold Switzerland
If you’re looking to deploy what I would consider a large amount of capital into buying physical gold, then you may also want to take a look at Gold Switzerland. These guys probably don’t get out of bed for orders less than £200,000, but if that’s what you’re looking to do then it makes sense to get in touch with them.
There are obviously others you may want to consider, but please be careful. There’s a lot of fake gold around (just like wine), so you need to make sure you’re being well taken care of.
Allocated Versus Unallocated Gold
The next point to note when buying physical gold is the difference between allocated and unallocated gold.
When you buy physical gold, you need to know whether it’s allocated or unallocated. Here are some of the key differences between the two:
- An investor in allocated gold is the outright owner of a certain amount of physical bullion.
- As it is the physical property of the investor and not part of a bank or other organisation’s gold reserves, allocated gold should not be seized in the event of a liquidity crisis (but you could still be taking a risk if you hold it in the banking system).
- Allocated gold may incur slightly higher costs than unallocated gold such as premiums and storage costs.
Many people view allocated gold as the ultimate safe-haven asset as their investment is independent of the performance of the bank. However, you may want to consider holding your gold outside of the banking system as any gold is likely to be viewed as an asset by the creditors if we were to have another financial crisis.
- Unallocated gold remains the property of the bank – the investor is essentially a creditor of the bank. It’s unclear what would happen in a crisis, but that’s probably worth checking before you buy it!
- Unallocated gold remains the property of the bank.
- The fact that no physical gold may be held makes this a much cheaper and more convenient method than allocated gold. It is the most common form of gold investment worldwide.
- The bank may not actually own sufficient gold to back the total value of all unallocated gold investments.
Again, what you decide to invest in really boils down to why you want to hold the gold.
You should discuss it with your financial adviser and make sure you do what’s best….for YOU.