Here’s Where I Keep My Gold …

Why it Matters For You …

This week, I jumped into a discussion on owning gold in an investment group.  It made me realise how persistent some misconceptions in investing are.

Several in the group (some experienced investors) were adamant that owning physical gold – via private bullion dealers – was safer than owning gold via ETFs, which some deemed to be untrustworthy.

The views surprised me.  Not because I think physical gold is bad (I have a coin somewhere that my mum once gave me!).  But believing it was a “safer” way than ETFs just defies logic.  Below i explain why.

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One thing we did agree on was that Gold is an essential part of any portfolio – as I recently outlined here.

But today I wanted to break down, clearly and simply, the real differences between the two ways of owning gold.  So you can make a decision based on facts rather than myths  …

Physical ownership effectively means …

• We hand over a big chunk of money to a ‘gold shop’, often found on the internet.  These companies are not FCA regulated, nor come with FSCS protection
• Instead of taking delivery of our gold, we are happy for the gold shop to hold onto it, on our behalf
• The gold is said to be stored in vaults in several locations
• We therefore trust the dealer that our gold:  a) exists and b) gets counted and audited properly
• We cannot see nor touch our gold. Nor verify its purity.
• If the dealer’s business collapses, it’s unclear if our gold is protected or ring-fenced (gold dealers are unregulated)
• When buying we pay a mark-up and when selling we don’t receive the full market price
• Fees come in several forms:  storage costs, buy and sell commissions, remittance fees etc (totalling 1-2%)
• We usually have to pay tax on realised capital gains.  Quite often, physical gold can’t be held in ISAs or in some Pensions

Owning Gold through ETFs means …

• ETFs track the gold price.  And are backed by physical gold holdings
• You buy the ETFs through FCA-regulated platforms that you have heard of (eg AJBell, Hargreaves Lansdowne, Fidelity)
• The ETFs are issued by FCA-regulated firms such as BlackRock, Invesco, Goldman Sachs, WisdomTree.
• Gold ETFs are 100% backed by physical gold held with regulated custodians such as HSBC and JPMorgan, which are separately ring-fenced from their parent business
• Gold ETFs have zero tax liability inside ISAs and Pensions
• Management and storage fees are very low (typically 0.2%pa)

In Summary:

I couldn’t think of a single reason why owning physical gold is safer vs ETFs.

To me, it’s pretty conclusive.  The protection, regulation, tax-advantages, storage, fees and ease of owning are all stacked in favour of ETFs.

And one should certainly have greater faith in FCA-regulated platforms like AJBell, Blackrock, JPMorgan etc vs unknown, unregulated internet gold shops!

Of course – It’s different if you already own physical gold.  I’m not suggesting selling it to buy ETFs.  That would incur transaction costs.   But think about the above for new purchases.   

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Always Remember:

• Time in the Markets always beats timing the markets
• Stay Diversified 
• Minimise those leakages:  Fees, Inflation, and Taxes
• Financial Markets are a great source of recurring income  
• ETFs, Balanced Funds and Options achieve all the above
• Being educated helps you outperform 99% of the population

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Finally …

– Don’t take the above as advice as it may not apply to you personally

– Your Capital is at Risk

– You may not be covered by the FSCS

– Anything mentioned in a podcast or in a previous article was valid at that time and may not continue to be now