Buying bullion can be a lucrative way to invest your money and a great way to diversify your risk. However, as with any other form of investment, the degree of your success will be determined by the soundness of your strategy. Let’s start with the basics:
Bullion is a bulk quantity of precious metal, such as gold, silver, platinum or palladium, measured by weight and typically cast as bars. Gold and silver are also bought and sold as coins (platinum and palladium coins exist but are rarer): and gold is traded in the form of small grains.
Bullion coins are cast from precious metals and bought for investment purposes. Their value is based on their bullion content and prices fluctuate daily. Well-known examples are the British Sovereign, Canadian Maple Leaf, American Golden Eagle and the South African Krugerrand.
Because they are classed as legal tender they enjoy a favourable tax treatment in many jurisdictions.
The simple aim of buying bullion is to buy when prices are low and sell when prices are high. However life and the markets are never simple or easy to predict. If they were, we would all have bought gold when it began its long rise in price in 2005. Or again after the banking crash of 2008. As we shall see, precious metals are best regarded as a long-term investment: so if you are able to buy during a slight dip in price that is good, but it is hard to call every turn of the market when considering how to buy gold. Bullion tends to move on a different track to equities and to other commodities, which makes it very useful hedge against losses in other investment classes: and it has other attractions that make it a very worthwhile and permanent asset.
The only way to really get your hands around the bullion itself is to buy and own exclusively the physical product. You can then decide whether to have it on your premises or to use the services of a secure vault. There is a choice of ways of achieving this aim.
Many analysts are agreed that being invested in commodities, including precious metals, is a good thing. Most confine their recommendations to funds that invest in a basket of commodities. However although a rise in gold spot selling prices improves the fortunes of a gold mining company, it probably faces challenges from declining output and increasing costs; so that its share price does not tally with the way that gold bullion rises in price due to its increasing scarcity. And other investment classes like property, oil & gas etc. are often included in the fund and can distort fund performance, limiting your exposure to the actual bullion market.
Nearer to the market are ‘paper gold’ certificates and ‘ETCs’ which purport to grant you ownership of the real asset: but the definition of ownership can be cloudy and you need to understand what these concepts actually involve.
You can buy physical bullion in a range of countries including the UK. However this can bring with it tax charges and you need to compare the advantages of different locations when thinking of how to buy gold, including those offshore.
The island of Guernsey presents specific benefits, including secure ownership and tax advantages, to the bullion investor.
It is important to invest with a supplier that has a transparent, liquid market for buying back bullion at favourable rates that do not disadvantage the holder. Suppliers like BullionRock offer a transparent selling process that is simple and advantageous. Beware of offers of ‘all-in-one’ pricing where you cannot relate the deal to market rates.
You will often discover that companies who sell bullion to you, particularly in the case of bars, will discount the market price by only 2% or 2.5% if you bought it from them: but bars that you have bought elsewhere may be penalised by a 4% cost (suppliers will factor in the possible requirement for them to re-assay your bars to restore their status to the prime ‘good delivery’ category).