The price of gold has never been higher. It has topped £50 a gram for three months, double what it cost seven years ago. That partly reflects current economic uncertainties, because gold is seen as a safe haven, a secure physical store of value that can be bought and sold easily.
But gold is not a normal investment. It produces no income. Its value can only be realised by selling it. So if you need to raise the money at a specific time you are stuck with the market price on that day. It also costs money to keep. It’s easy to steal – a kilogram bar worth more than £50,000 is barely half the size of a smartphone. If you store it at home you must make sure your contents insurance covers it. A rented safe deposit box will cost at least a couple of hundred pounds a year and may also need insurance.
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It costs money to buy gold and to sell it, too. As I write, one top London dealer charges £1,655 for one ounce of pure gold, but the gold itself is worth £1,566 – a mark-up of 6.3%. The more you buy, the lower the margin: a kilogram will cost you £51,138 for a gold value of £50,380 – a 1.5% mark-up.
Another margin will be taken when you sell: currently you’ll be paid less than £50,000 for a kilogram. If you buy more affordable items, such as a gold sovereign for around £400, or a 10-gram bar for £550, the margins are much higher. You will not make a profit until the market price rises sufficiently to cover these costs. At auction, buying and selling margins are both much higher.
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You should never buy or sell gold from an online search. Go to a respectable London dealer such as Sharps Pixley or, of course, the complete
security of the Royal Mint, and always check the mark-up. Finally, gold should only be a small part of your savings. Cash can currently earn more than 5% interest, fixed over one year, and is completely safe up to £85,000 in any one bank. Gold has no such protection.
QUESTIONS? Send any questions to Paul.Lewis@radiotimes.com. Paul cannot answer you personally, but will reflect them in his column.