How to invest in gold

There was a buzz in Paris this week when this gold plated Lamborghini Aventador was spotted on Avenue Montaigne. Apparently the late Duchess of Devonshire had her window frames gold leafed as she felt it was more hardwearing than paint, which is probably the kind of practical consideration that this Saudi car owner was thinking of.

According to the World Gold Council, there’s an untapped market of £4billion of people keen to invest in gold. And this week, the Royal Mint did it’s best to tempt them into the market with its bullion investing platform, where ‘ordinary folk’ can buy and sell gold and silver coins.

Whether this is the best way to invest in gold is questionable. The Royal Mint are charging 1% per year storage costs (plus VAT), which is pricey. The benefit of coins is that they are exempt from capital gains tax, which could be a plus for you. But investments in gold bars can be put into a SIPPS (which coins can’t). Before you give away 1.2% of your investment, check carefully what would be the most cost-effective way for you to hold gold.

But why are all these people so keen to get a piece of gold?

This 5-year price chart shows the wild fluctuations the metal has shown, dropping around one third in value in the last 3 years.

It doesn’t look particularly tempting …

But there’s support at the 1200 level, which is holding at the moment. But we shouldn’t fall into the trap of thinking that we’re getting in at the bottom.

Of course, the reason why people love gold can be seen in the long-term bull market that ran for the first decade of this millennium …

Gold investors are hoping for a return to the highs of 2011. And if gold bulls are anything – they’re patient and persistent. You have to give them that.

The big driver for gold in the short term will be US interest rates. But if you’re buying gold, you need to be planning to leave that investment alone long term. This a wildly volatile market – we may be able to ride long-term trends, but can’t hope to judge all the bumps in the road.

One of the theories thrown out by ‘gold bugs’ is ‘peak gold’. The idea is that, a bit like peak oil, the production of gold will hit an all-time high, and then reduce, as deposits become harder to find and existing sources are mined out.

‘I don’t think that we will ever mine as much gold as we do in 2015. That’s positive for the gold price.’ said Goldcorp CEO Chuck Jeannes.

But the problem with this theory is that gold doesn’t get used up like oil does – every ounce of gold that’s mined adds to the store of gold in circulation.

However, the current price of gold is causing miners to look at reducing output and shutting down operations.

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