There are several ways to own gold as a form of wealth protection with each one having advantages and disadvantages. Ed Pearce, Managing Director of Douglas-based gold bullion depository and trading company IMGold, summarises the pros and cons of some of the most popular options.
Many financial experts are now suggesting that gold should form between 5% and 10% of a sound investment portfolio. This should come as no surprise when you consider how confidence in banks, currencies, and the property market has been damaged in recent years as one crisis after another hits the news headlines. If you have decided that gold should form part of your wealth protection portfolio, the next step in the process is to choose which form of ‘ownership’ suits your individual requirements. Here are some alternatives to consider:
• Allocated bullion: This means that gold is purchased and stored in a vault owned and managed by a recognised bullion dealer or depository. The bullion dealer or depository that owns the vault may not trade, lease or lend the bars - except on the specific instructions of the bullion owner. This gives the owner of the bullion the reassurance of knowing that they can take physical possession of their gold whenever they wish to do so. In many ways this is the only way to truly ‘own’ gold bullion.
• Gold coins: UK sovereigns and South African Krugerrands are the two most popular choices when it comes to owning gold coins as a form of wealth protection. As an alternative to owning bullion, purchasing gold coins is a completely personal preference. Whilst margins are higher on coins when compared to allocated bullion, many people enjoy coins from an aesthetic point of view, or regard them as collectables.
• Pool allocated bullion: Pool allocated bullion means owning a percentage of bullion which is shared with other individuals and stored in a vault owned and managed by a recognised bullion dealer or depository. However, unlike allocated bullion, you do not own a bar of gold so cannot take possession of it.
• ETFs: A gold exchange traded fund is commodity ETF that consists of only one principle asset, gold. However, the fund itself consists of gold derivative contracts that are backed by gold. You do not actually own any gold so cannot take possession of bullion should you wish to do so.
• Gold certificates: These are certificates of ownership issued by banks which hold bullion on behalf of a client. While gold certificates mean that the bank takes responsibility for the security and storage of the bullion, it also means that gold is usually regarded as one of the bank’s assets - and in this scenario there may be a risk that the Gold Certificate cannot be honoured if the bank fails.
The above summary is a good starting point when making the right choice for your needs – but as with all financial decisions more detailed analysis of individual requirements is necessary to reach the right decision. If you do come to the conclusion that physical bullion is for you, IMGold deal exclusively with allocated bullion and coins.
