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31 Jul 2021

Millennial investors flock to gold: should you?

Gold has traditionally been seen as a 'safe haven', but it's not risk-free
bars of gold in various sizes

Gold has proven its worth for the Royal Mint, with sales of the precious metal helping it to a £12.7m profit last year.

Much of this was driven by younger investors, with the Mint reporting a 430% increase in millennials investing in gold, mostly via its DigiGold online platform.

But if you think you're ready to make an ingot investment, there's a lot you need to know before you go ahead.

Gold has traditionally been seen as a 'safe haven', able to withstand market shocks like no other investment. But that doesn't mean that it's risk-free.

Here, Which? looks at why investing in gold has proven so popular, as well as the pros and cons of doing it yourself.

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Why are millennials buying gold?

According to Andrew Dickey, Director of Precious Metals at the Royal Mint, the huge increase in millennials buying gold from the Mint is partly down to how accessible it now is.

'It's largely because we improved our website, we made sure our investment portfolio was more accessible than ever before to that particular kind of audience,' he told Which?.

Its DigiGold product, which allows investors to buy fractions of gold, silver and platinum kept in the Royal Mint's vaults, has been particularly popular with millennials.

According to Dickey, there's also been a wider trend towards precious metal investment over the past 18 months, and his division has expanded rapidly since the start of the pandemic.

'With Covid, precious metals really broke through into the mainstream,' he said. 'Our business grew by about 350% across last year.'

Though it's always been popular overseas, Dickey says the Covid crisis has woken people in the UK up to gold as an investment choice.

Is gold coronavirus-proof?

As the nation went into the first Covid-related lockdown in March 2020, the stock market took a nosedive. Gold prices, meanwhile, stood firm.

The FTSE 100 dipped to its lowest level since 2012, but the price of gold inched up from £1,353 to £1,382 per 'troy ounce' (oz), equivalent to 31g - then its highest price on record.

After that, the price of gold continued to soar, cresting at a peak of £1,574/oz in August 2020. Since then, it's been fairly volatile: it dropped to £1,220 in March 2021, and at the time of writing it stands at £1,303/oz - close to where it was in the pandemic's early days.

Looking at 30 years of the FTSE 100 and gold prices side-by-side, stock market dips don't appear to dent gold. The financial crisis of 2008-09 was the start of a huge upward trend that saw gold prices break records on an almost monthly basis until late 2012.

But gold can also fall, seemingly out of sync with the rest of the global economy. After 2012, gold prices fell and didn't reach the same heights again until 2019. And, given the unique nature of the Covid-19 pandemic, past performance is not necessarily a reliable indicator of where gold or share prices will go next.

What are the risks of gold investment?

While you can diversify equity investments over different industries and regions, there are fewer ways to diversify your gold holdings.

Nor is gold a fixed-income investment such as gilts or corporate bonds. To limit the impact of gold price falls on your portfolio's value, you'll need to limit the percentage of gold in it.

Then there's the fact that gold doesn't 'produce'. Owning it won't pay you interest, dividends or rental income: you'll only see a profit when you sell it.

It also might end up costing you to store and insure it (more on that later).

Some investors see gold as a way to pass on wealth rather than generate earnings, although gold is not exempt from inheritance tax. Others see it as a kind of insurance in the event of a system collapse.

How can I buy gold?

Platforms like the Royal Mint's DigiGold allow you to buy fractions of physical gold stored in the seller's vaults.

Since you're buying in fractions, you have more control over how you invest and you may be able to start from a lower amount than you would otherwise. DigiGold starts at £25, but a 1g bar of gold is around £60 from the Royal Mint. Keep in mind that you will have to pay storage fees with this method of investment.

Alternatively, you could buy physical gold to keep yourself either as bullion bars or coins - Britannia and Sovereign coins are popular choices.

While a bar's value is always the same as the price of gold, some coins also have numismatic value - they could be worth more than their gold content alone.

When buying gold, make sure you opt for a seller with a good track record. Sovereign mints, such as the Royal Mint in the UK or the Perth Mint of Australia, have the advantage of being government regulated as the bullion they produce is legal tender, albeit with higher mark-ups than private mints.

You could also buy gold jewellery, although items will likely cost far more than the value of the gold they contain, making them less effective as an investment (as opposed to insurance) strategy.

How to store gold investments

You'll need to keep the costs of storage in mind. Some sellers will store the gold for you for a fee, or you could pay for a safe deposit box.

You could also keep gold at home in a safe, but make sure you inform your home insurer.

Phil Cooper, home insurance specialist at NFU Mutual told Which? last summer: 'As a matter of course when you buy new valuables, including investing in gold, you should always inform your insurer as it's not common that any amount will be automatically covered.'

He also pointed out that changes in gold's market value could leave you under or overinsured if you don't update your insurer regularly. Some insurers may charge for adding gold to your policy.

How else can I invest in gold?

Exchange-traded funds (ETFs) and exchange-traded commodities (ETCs) are a good alternative if owning physical gold sounds like too much hassle, or you're only investing in gold for the short term.

They can be cheaper as well, since you don't have to buy whole bars or coins, and don't have to cover the cost of storage.

Some investors buy shares in gold-related companies as a roundabout way of investing in gold.

Will I have to pay tax on gold?

When it comes to selling, Britannia and Sovereign coins are exempt from capital gains tax (CGT) no matter how much profit you make from them, because they are legal tender in the UK.

ETFs and ETCs can be bought and sold easily through investment platforms and can be held in a stock and shares Isa, meaning they are not subject to CGT when you sell them.

You will have to pay CGT when you sell other types of gold, though it is not subject to VAT or stamp duty.

What about investing in silver?

There's also been a huge spike in investors buying another precious metal - silver. After the Reddit-fuelled Gamestop investment bubble in January, many of the same investors turned their sights to the second place substance.

'We really saw incredible levels of increased demand for our silver products, both digital and physical,' says Dickey. Between March and April 2021, sales of silver bars were 540% higher than they were a year earlier.

As with gold, you can buy the actual silver bullion, ETCs and ETFs, or invest in a mining firm.

But as an investment, silver is far more volatile than gold - its price will rise and fall much more quickly. For example, while gold rose 15% from February to August 2020, silver shot up by 50%, perhaps due to its post-Gamestop popularity boost. It's since been rising and falling, though not as dramatically.

Silver is far cheaper than gold, so smaller numbers of investors buying and selling silver will have a bigger impact on price. At the end of July 2021, a troy ounce of silver would cost just £18.

A lower price makes it much easier to buy silver bullion - however, it also means you'll need much more storage space for it than gold.

First featured in Which? Money magazine

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