What First Time Gold Buyers Need to Know
Gold is humanity’s oldest store of value. Since antiquity, when most commerce was barter-based, the wealthy stored their riches in gold. Eventually, gold became an exchange of value that expedited trade as it was turned into coins. In one form or another, gold remained essential to global currencies until the 1970s.
Gold continues to be a popular investment vehicle as a counterweight to stocks. Gold and other precious metals offer lower risks than many other investment vehicles, especially when you buy at the right time. There have been periods when gold prices lost value quickly, usually after a long bull market pushed gold prices to new heights. Buying gold after these price corrections will allow you to safely store your wealth in one of the assets most favored by conservative money.
If you want to get started investing in precious metals, there are a few things you should know about gold and silver first.
Gold vs. Silver – A Tax Perspective
Buying precious metals in the UK you should be aware of the difference between these two metals when it comes to taxes. Unlike many countries in the EU and around the world, the UK charges VAT on silver, including silver bullion coins and bars, adding 20 percent to the costs. The good news is that VAT is not applicable to gold bullion, making gold the better investment vehicle. The government stopped charging VAT on gold in 2000 to become competitive with countries in the EU that did not charge VAT on gold. Regulations changed to begin treating gold like any other investment vehicle, such as stocks.
There are some compelling reasons to invest in silver bullion, such as its higher upside and growth potential. When you buy silver bullion, consider buying and keeping it offshore.
Gold Prices: Futures vs. Spot
The gold price is decided in London by The London Gold Fixing, a conference line between participant banks including Barclays, the Bank of China, HSBC Bank USA, JPMorgan Chase, Toronto-Dominion Bank, Société Générale, and several others. The futures price is determined twice per day at 10:30 a.m. and 3 p.m. on London time.
This is the price for settling the futures price. Gold spot prices, like all commodity spot prices, are the current price for settling a spot contract, i.e., a contract in which gold will be immediately delivered, including going to a gold shop or even buying gold online. The futures price is typically higher as it accounts for the costs of storage and interest rates until the time of delivery.
Gold vs. the U.S. Dollar
Gold prices are often related to the strength of the U.S. dollar, another type of “conservative asset.” Low-interest, high-liquidity investments like money markets make holding the dollar desirable when it’s strong, but factors like inflation, currency debasement, and geopolitics can shake confidence in the US dollar and drive up gold prices.
One last thing that new gold buyers should know: there are thousands of opinions, predictions, and theories about gold prices online, on the radio, and on TV. No one can predict exactly where gold prices are headed, although there are some strong correlations. Buying gold is a smart, strategic move, but be wary of pie-in-the-sky contradictions and always do what’s best for your money.