How to Invest in Gold — Step-by-Step Guide

Golden Opportunity

Updated: December 11, 2023
Matt Crabtree

Written By

Matt Crabtree

 

You may see gold as something that only the super-rich can afford — but it’s actually frequently recommended as an investment that everyday savers can use, to add some stability to their portfolio. Especially as the living crisis intensifies, gold can be less of a gamble and more of a golden opportunity.

This means gold investing can be safer than it seems. There are several different ways that you can participate without risking exposing all of your savings to the precious metal. 

While gold might not make you a ton of money, it can help you to lock in the value of your capital in the event that cash becomes less powerful. Without further ado. Let’s cover how to invest in gold, including the process of purchasing physical bullion.

At a Glance, pros and cons

Humans love gold for lots of different reasons. It’s shiny, rugged yet malleable, and highly sought after. But is it the right investment choice for you? If you’re looking for a top-line Breakdown of the benefits and drawbacks of gold, you’re in the right section.

Pros

Investment safe haven. Gold has the largest amount of trust compared with any other unsecured financial asset in the world. The benefit? It’s hard to lose significant amounts of money by holding gold as an investment.

Can resist inflation. Inflation happens when spending power decreases. The loaf of bread that your parents paid 60p for, now costs you £3.50. Inflation happens when central banks print money. But gold supply is much more limited and restricted, so can be resistant. 

Less long volatility. One of the top reasons investors choose gold is because of the long-term resistance against economic and banking volatility. These investors don’t mind losing 20% in the short Or medium term as long as the value holds long term.

Hedging your portfolio. Hedging is the process of reducing the volatility of all of your assets in your portfolio. Adding gold or silver as an investment can balance out your risk exposure because gold is relatively less volatile than other investment types.

Cons

❌️ Fluctuations. Like any other financial asset or commodity, the value of gold can increase or decrease in the markets according to economic conditions. This might not be the direction you want.

❌️ Doubts. One Wall Street Journal study allegedly discovered that the track record of gold as a hedge against inflation was mixed at best. The study looked at the stability of gold since the 1970s.

❌️ Cost. If you’ve ever been inside a jewellery store, you’ll know that gold can be pricey. Gold cost less than £1000GBP per ounce in 2010, which rose to nearly double that in the decade thereafter.

❌️ Storage. When you buy physical gold bullion, you’ll need to consider ways of storing it safely. This can be complex.

We’ve covered multiple reasons why investors choose to invest in physical gold bullion rather than other investments types such as stocks or bonds:

In summary, you’ll find that gold has extremely liquidity — coins and bars can readily be sold back into the market if you need cash. Gold is also an international standard of value exchange globally. Gold has been used as a value store across history.

Gold can help to hedge against inflation because it’s not quite as subject to the same economic volatility that stocks and bonds face.

Why is Gold so valuable? A quick history

Gold has been used as an investment for millennia, even before the birth of Christ.

Before learning about how to invest in gold, we should start by understanding what we are actually investing in… Gold is a naturally occurring commodity. This chemical element has been used as currency for millennia and today still functions as a store of value. Of all precious metals, gold ranks amongst the highest. 

One of the earliest recorded uses of gold as money was as early as 700 BC, Which was when China started using it as an exchange currency. A tangible currency, unlike crypto, gold allows the flow of value that can be physically exchanged. In the West, gold became a popular value store in the 11th century. 

In this century, gold coins were common in much of Europe, China, and India. And of course, this value was bolstered because gold was used ornamentally and for jewellery.

Within an alleged 3,000 years of use and societal value, gold is generally thought of as a safe investment although not risk-free. This value can change according to the economy and financial markets. Any investors in gold should be ready for near-sight losses. 

But because of its historic trustworthiness as a long-term investment, most of us who purchase gold do so understanding that we may lose some of our money but gain overall stability and potential for dividends.

Gold in the modern era

The loss of the gold standard was a pivotal point in gold’s history because it gave central banks the ability to inflate currencies. In the early 20th century, the collective West and other countries started making money denominations with reduced redemption rates for gold.

While each bill dropped in value, the price of gold grew dramatically, and it hit an all-time record high in London in September of 1931.

And in 1970, gold was altogether irredeemable for US dollars (announced by President Richard Nixon). This marked the era of fiat currencies. The price of gold began to plummet again during this period because the supply of gold increased from places like South Africa and Australia.

Nonetheless, its price has steadily been rising once again since 2001 as a result of more demand from emerging Asiatic regions such as India and China.

In current times, several ways of purchasing physical gold bullion exist, including buying gold coins or bars directly from a dealer or purchasing them from the source, e.g. a mining company that offers some of its extractions to the public.

You can also purchase shares in a fund involved in investing in precious metals or they can buy futures contracts on several different commodities exchanges across the globe.

How to invest in gold in the UK

Bank branches may disappear by 2025, so physical ownership of assets is becoming rarer, even down to physical branches. Gold functions as a relatively rare tangible asset. 

You have three primary ways to buy gold in Great Britain. To begin with, you can buy gold coins or bars from a jeweller or dealer. This could be a piece of adornment or gold bullion. When you buy the latter, it’s typically sold in kg blocks or in the coin version called ‘tokens’.

Both bars and coins are specially designed for gold collectors and investors, whereas gold bullion is investor focused, made for those who wish to store their wealth in physical form so that they can hedge against price fluctuations.

Several different types of gold bullion types exist — each is purchasable on the market and has a different weight and cost. Gold bullion offerings are typically purchased per ounce (oz) or kilogram (kg). The cost for each ounce will depend on how pure the product is. 

You’ll find that the greater the purity, the more it costs per ounce. Before you buy your bullion, it’s crucial to do some research about the different versions so you can make an informed decision to balance your budget against the cost per ounce for your product.

Once you have decided on your preferred type of gold, you can buy go from a dealer or jeweller in three primary ways:

✅ Physical product

✅ Bullion ETF (online trading app, e.g. eToro)

✅ Futures (risky for non-professionals)

Here’s how to invest in Gold Bullion (physical mixed gold)

You can buy gold in the form of bullion, coins or gold bars.

Gold coins can come in many different shapes and sizes, making this form of storage more difficult to tell apart from other forms of gold coins. By comparison, gold bars are usually designed the same way, rectangularly. And it’s created from gold extracted from the earth. If you purchase gold bullion, this is usually a mixture of bars and coins.

✅ First find a dealer or jeweller. 

✅ It’s important that you know whether you’re buying ‘trading’ gold or ‘store’ gold. When you buy trading gold, this means small bars and coins and typically are designed for investors who want to trade gold for profit. Whereas store gold is larger bars or coins designed for long-term storage and investment. 

✅ Purchase trading gold from the majority of high-street jewellers, however, you will need to go to a specialist outlet to find store gold. 

✅ When you purchase trading gold, begin by getting a feel for the current market gold price so they can track what your investment was and how it is changing across time. You can also confirm this information through your dealer. 

✅ Keep in mind that if you need to sell trading gold you’ve bought, you need to return it to the regional dealer you purchased it from so they can validate its genuineness and weight.

Source important to store your gold somewhere secure in order to safeguard your investment. Gold is a prime target of terminals so you want something rugged such as an industrial-grade safe or bank vault. It’s probably unwise to store your gold at home, to lend it to others or to talk about it.

Here’s how to invest in gold ETFs

Exchange-traded funds are investment types. Through it, you buy and sell units of gold. This is the simplest way to buy gold without actually owning physical gold.

You can get gold ETFs like this on the normal stock markets, just as with shares. You allow a custodian bank to safely and securely store your gold. A single unit reflects a particular weight of gold that is indeed being physically held by your trusted custodian bank. 

When you choose to make an ETF investment, you specify the weight of gold you wish to own gold you want to own, typically measured in ounces, and your risk tolerance. 

Choose from numerous different options open on the market that offer different risk and return levels. Once you’ve invested, keep track of your investment so you know what its rate is and how it’s changing. You can do this by checking your portfolio online. Or download regular reports from a custodian bank.

You can directly get gold ETFs via trading apps like eToro.

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Here’s how to invest in gold futures 

Before investing in the futures market, know that they are less liquid.

This means that you are able to buy a very large amount of gold for delivery in the future. But the actual volume of trading during any given trading window is small. It’s typically fewer than a hundred contracts on each exchange. 

Be warned, you may end up having to hold out until your gold futures contract ends before you can resell it on the market. When you purchase gold futures, not only are you settling on a specific buying price for gold but you’re also prevented from immediately selling it back into the market. 

Also, transaction costs are greater with futures markets compared to spot markets — the reason is that most physical bullion coins can be immediately sold back into the Gold market at the same cost they were bought at. There is no need to go through commissions when exchanging. 

Fees

For any exchange on the futures market, you will have to pay a commission (this is typically less than a pound per contract). These fees are not charged by the actual exchanges. Brokers charge this to you so that they can trade on your behalf.

You’ll also find that the futures market has higher minimums and margins — the reason for the larger restrictions is that futures trades have our greater speculative characteristic. For instance, COMEX has rather complicated margin requirements.

That said, the most popularly used bullion coin exchanges such as ProvidentMetals.com and APMEX.com do not have these requirements in order to buy bullion coins. Overall, you should only try to use should futures markets if you’re a professional trader who wants to exchange large amounts of metal. And if you actively trade (eg. hedge fund managers). 

If you want to get into this, you should probably seek out the advice of a seasoned professional; gold futures markets are complicated!

Spot prices compared to futures

This section will deal with some of the more complicated aspects of buying gold. 

In the list above, the first two entries base their pricing of gold on spot prices. So when you go to a jeweller, or if you purchase gold using a trading platform like Stake, you will be purchasing gold based on the spot price. Let’s explain.

Gold prices, as with other commodities, are decided in two main ways: spot prices and futures prices. The spot price is the current value of gold at the time that you want to buy it. This is based on whatever the market has decided gold is worth per ounce, as well as based on purity and other factors. 

However, futures prices are based on the value you think gold will be at the date that you wish to buy it ahead in the future. This system lets investors exchange gold at a specific price at a particular point in the future. Futures contracts are all worked out in the same way — and they occur on systematised financial exchanges. You can purchase grain, meat, and even cryptocurrencies on these exchanges.

Your spot value of gold changes across the day. In other words, whenever you make an order for physical delivery of gold, this means you are purchasing it at whatever spot rate the gold was at when your order was made. 

On the other hand, your futures gold costs fluctuate only during particular times when trading occurs on organised exchanges — these fluctuations happen because investors have exchanged futures contracts with each other.

The spot market for gold is incredibly liquid — which means there is no need to wait until the expiration date of a futures contract occurs for you to exchange your physical bullion for cash because most coins can be resold to the market instantly. 

In addition, unlike the stock market, wherein you may find significant differences between the quoted costs for particular stocks depending on the platform due to discrepancies in regional supply and demand forces, commodity markets tend to have fewer discrepancies because only one physical commodity is being exchanged.

When to buy and sell

Gold is generally a long-term investment. That long mindset should be used with gold.

Buying at a high, selling at a dime?

Some investors think the best time to buy gold is when it’s priced at its highest. However, the price of gold is determined by supply and demand just as with any other commodity and is impacted by economic conditions. 

So if the value of gold rockets, this often means that people are worried about the economy, as well as other aspects such as state security, and are seeking ways to stabilise savings. If the demand you are seeing is due to unstable economic conditions, this can pump up the price of gold beyond what it can hold. 

Always remember that a spike in the price of gold does not guarantee future gains. If the pattern of supply and demand turns the other way, this could leave to a significant reduction in your overall investment.

How to invest in gold: The Verdict 

What are the advantages and disadvantages for you?

Overall, you’re getting a store of value that has historically been relatively reliable for millennia. As long as you are willing to hold your good investment for a long period of time. And as long as you don’t over-invest into gold. Then it is a very useful means of holding capital value, especially in times when inflation is a big risk to your cash savings.

Related Guides:

Buying Gold: FAQs

How to buy gold and reduce risk?

Do people buy gold during recessions?

Why do people often invest in gold?

How can I safely store my gold?

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