Investing in gold: bars, coins, ETFs and gold accounts explained

What owning gold can mean

Buying gold can mean very different products. The World Gold Council, the gold industry’s own organisation, sorts them as follows; we use its page only for these definitions.

• Bullion bars and coins: “The value of bullion gold is determined by the value of its physical gold content.”
• Collector (numismatic) coins: they “do not qualify as bullion coins” and can be priced above their gold content “based on factors such as scarcity or design”, which takes specialist knowledge to judge.
• Investment jewellery: high-purity pieces; the definition “excludes gold-plated and similar items”. The price of ordinary jewellery also pays for design and workmanship.
• Managed gold: gold “stored in professional vaults on behalf of customers”, either allocated (specific bars kept for you) or pool allocated (a share of a pool). Gold savings plans and gold tokens on a blockchain are variations.

A further route involves no metal of your own: a gold ETF or fund, bought through a broker like a share, whose value follows the gold price. Our ETF guide explains how such funds work and what they cost.

Gold pays no income, and its price can fall

Gold pays no interest, rent or dividends: your return depends only on the price when you sell. Canada’s Ontario Securities Commission lists gold among non-guaranteed investments, about which it says: “You could lose some or all of your money.” The UK’s Financial Conduct Authority (FCA) warns that if you invest directly in high-risk investments “such as commodities”, you are unlikely to be protected by its compensation scheme or its ombudsman if things go wrong. The what-if calculator shows how the gold price has moved over past decades.

What you pay

The World Gold Council lists the kinds of costs:

1. a purchase fee or commission, “typically calculated as a percentage of the amount that you’re investing”;
2. “an additional premium to cover overheads” — what you pay above the value of the metal;
3. for stored gold, “fees for storage, insurance, administration and other services”;
4. when you sell, “similar costs, i.e. selling fees and selling discounts”.

The gap between a dealer’s selling and buying price works like a spread. An illustration with made-up numbers: if a dealer sells a small coin at 6% above the value of its gold and buys it back at 2% below, the gold price must rise by about 8% before you break even, before any storage or insurance. A gold ETF charges a yearly fee and your broker’s costs instead; a vault account charges a custody fee.

Purity: carats and fineness

Fineness is the share of pure gold in an item, in parts per thousand. The UK’s British Hallmarking Council explains that the fineness of gold articles “ranges from 375/9ct to 999/24ct”, and that fineness “determines the value of that article, which in turn determines the price.” The gold standards it lists are:

• 999 — fine gold, 24 carat
• 990
• 916 — 22 carat
• 750 — 18 carat
• 585 — 14 carat
• 375 — 9 carat

So an 18-carat ring is 75% gold, and the rest is other metals.

A hallmark is a mark applied by an independent assay office after testing. Under UK law, an item “described as gold, silver, platinum or palladium must have a hallmark to guarantee its authenticity and its quality”, with exemptions below minimum weights. The UK government warns that “Fraud is happening through the sale of fake jewellery” and advises: “Always ask if the piece is hallmarked”. Hallmarking rules differ from country to country, so find out which body tests and marks gold where you buy, and ask for an invoice that states the weight and fineness.

Keeping gold safe

Gold kept at home can be lost or stolen and may need insurance. A safe-deposit box or a dealer’s vault costs fees. With a vault account, ask whether specific bars are allocated to you, whether you hold legal title to them, who runs the vault, and whether you can collect the metal or only sell it back.

Spotting a gold scam

France’s financial markets regulator, the AMF, lists precious metals among what it calls placements atypiques (atypical investments) and warns that with such investments the risk of losing your money and of falling for a scam is high; it reminds savers that a high return always means a higher risk. The FCA adds that “The promise or suggestion of high returns can often be the sign of a scam”.

Warning signs include:

• a promised or “guaranteed” return on gold;
• pressure to decide quickly, or an unsolicited call or message offering gold;
• metal you can never see or collect, held only by the seller;
• a seller you cannot find on the official register of your regulator, where gold sellers must register.

Before you pay, check the seller against your regulator’s warning list; our guide on clone firm scams shows how.