From ancient times to the modern day, gold has always been synonymous with wealth and prosperity. Historically, this precious commodity has been a store of liquid wealth, and was frequently used for trading. Although no longer circulated in the form of gold standard currency, it remains an integral asset; from large central banks to smaller individual investors, many choose to store sizeable portions of their liquid assets in this scarce resource.
Physical gold offers investors the opportunity to spread their investment risk through a well balanced portfolio, by offering them a store of wealth outside of the banking system. Even though there is no gold standard, gold is still seen and used as the world’s universal currency, providing a stable and reliable alternative to printed fiat money.
The UK has been particularly vulnerable in the past few years, with the uncertainty of Brexit, followed by the impact of the pandemic, seeing economic growth falter and inflation rise. Since 2019 we have seen multiple Prime Ministers and Chancellor's come and go. Interest rates have risen as the Bank of England attempts to bring inflation back in line with their 2% target. While economies like the US have managed to recover, the UK economy has seen stagnant growth while the pound remains historically low versus the pound.
The UK's economic weakness has seen gold grow from £1,000 per ounce in 2019 to £1,600 in 2024, and further gains are forecast in the years ahead. Gold also has tax benefits over many other assets in the UK, with
VAT
and
CGT exemption
available. For any investors asking why to invest in gold, it is this combination that is the answer; good medium and long-term returns, a physical asset you own, and a tax efficient one.
Gold as an ideal investment foundation
Gold investment is an ideal method of accumulating and protecting wealth. Furthermore, it is also seen as an ideal method of diversifying an investment portfolio due to its negative correlation with stocks and bonds.
Although the price of gold may be volatile in the short-term, gold maintains its value over longer periods of time, providing a useful hedge against the value erosion of fiat currency. Additionally, if you are planning a substantial gold investment, choosing to buy British gold coins will exempt you from both
VAT
and
Capital Gains Tax (CGT).
Ability to hold value in times of crisis
Gold is frequently referred to as the ‘crisis commodity’, due to its ability to hold value in both financial
and geopolitical uncertainty. As global tensions rise or confidence in governments falter, gold tends
to outperform other investments. To not hold gold is to fully trust the government on all levels, relying
on them to be able to maintain the economy.
With the US dollar technically very weak, global currency debasement is a concern for many, especially
those not vested in gold. If a large currency debasement occurred, tangible assets - including gold - will
see substantial increases in value.
Buying physical gold will allow you to hold assets outside of the banking system, this reduces personal
exposure to banking related risks whilst also diversifying your wealth distribution. Unlike fiat currency,
gold’s value is not determined by governments; fiat currencies hold no tangible value, and their value is
only backed by governmental laws.
Increasing investment demand
There has been increasing investment demand for gold in the UK since 2016 when the Brexit referendum began the process of the UK leaving the EU. This demand was only compounded when the pandemic began in 2020. Subsequent geopolitical volatility in Ukraine and the Middle East, banking crises, and economic uncertainly have only made gold more attractive to UK investors. Central banks have also purchased record amounts of gold in recent years as they move away from the dollar towards gold as a safer reserve asset.
Limited physical supply
Gold is an extremely scarce resource. If all the gold ever mined was refined into pure form and melted into a block it would be approximately 8,549 cubic metres. In simpler terms, it would be a cube with each side approximately 20.4m long.
Initially treasured for its colour, malleability and anti-corrosive properties, gold’s value is further enforced by its natural scarcity. According to research, the presence of copper in the earth’s crust is approximately 55 parts per million; when compared to gold’s 0.0038 parts per million, the natural scarcity of this precious metal becomes even more clear.
View our Top 5 Gold Investments...
Disclaimer: We cannot offer personal investment or tax advice. This guide aims to offer a useful source of information and opinions to assist people in making their own informed decisions. If you do require detailed tax and investment advice, you should seek your own independent advice from an appropriately qualified adviser.
