Yo Ho! It’s a pirate’s life for me. Or is it?

The Covid-induced gold rush

Normal life as we once knew it has gone on hiatus. Working socially-distanced or from home has brought new challenges and if we’re nipping out of the house we not only grab our phone and car keys but the face mask and hand sanitiser come along for the ride too. But how has Covid-19 altered our view of gold, jewellery and precious metals, and should we be swashbuckling our way through the tumultuous investment market and hoarding gold bullion?

In mid-August the price of gold hit a record high and broke through the $2000 (£1538)¹ an ounce barrier and has continued to rise since. Compared to the price at the beginning of 2020, gold is now worth 34% more, a figure to which any sea-faring buccaneer would be toasting a goblet of rum. But why do investors head for the shiny stuff in a time when hard currency itself is being slowly fazed out? Even The Royal Mint announced this September that they no longer need to make £2 coins for the next decade due to a 65% slump in coin usage by the general public.²

Juan Carlos Artigas, the head of research at the World Gold Council says “In times of uncertainty people head to gold, and this is a very uncertain time. Interest rates are so low, that if you put your money in the bank it earns you next to nothing or potentially the bank even charges you to look after it.”³ Back this up with words from the CEO of the LBMA ⁴ , Ruth Crowell, and the temptation to jump your investments from the dusty saving accounts ship, and head for the shiny gilded cache markets is high, “I can think of no clearer demonstration of gold’s role as a store of value than the enthusiasm with which investors across the world have turned to the metal during the unique social and economic turmoil of the past few months. Gold has once again proved to be the safe haven of choice in periods of uncertainty and high volatility.”⁵

Is the pirate life for me?

You and your family members are likely to have invested in the jewellery form of gold, but how easy is it to become a member of the crew and start loading up your own treasure chest with golden booty?

1. Buying Bullion

There are several ways to invest in gold, the most obvious being the purchase of physical gold in the form of sovereigns and gold ingot bullion bars. For example, The Royal Mint has its own webshop where prices for a ‘1/10oz gold bullion Brittania 2020 coin’ start at £180.81⁶ One advantage of buying sovereigns is that they are classified as ‘currency’ and therefore exempt from Capital Gains Tax.⁷ You can also keep this physical gold at home, in a safe, but remember to update your household insurance adding it to the Arts, Antiques & Collectables section of your policy.

2. What is ‘Paper Gold’?

Paper gold is known as an ETF. Exchange Traded Funds act like individual stocks, and they trade on the stock exchange in the same manner. However, the difference to other stocks is that the fund itself holds gold derivative contracts⁸ that are backed by gold. Bear in mind that if you invest in a gold ETF, you won’t actually own any gold. ETF’s are easy to buy by opening an account with a trading platform but make sure everything is shipshape and be aware of the fees and risks involved with any type of trading.

3. Digging for gold

The third way to invest in gold is by backing the source direct and considering an equity in a gold mining company itself. The UK has seen the very recent emergence of two new projects worth £1billion⁹ where goldmines in Snowdonia National Park, and Loch Tay in Perthshire, Scotland are soon to be open for business. Even Warren Buffett turned tail against his lifelong beliefs of never backing gold, and has since invested half a billion dollars in gold-mining company Barrick¹⁰ in August this year.

Good as gold?

The mining industry has unfortunately long been associated with poor working conditions¹¹ in certain parts of the world, so for those investors looking for a SRI (Socially Responsible Investing) opportunity, the emergence of Fairtrade gold has made it possible to invest in gold jewellery¹² with an ethical backing. By supporting small-scale miners who will receive a fair deal for their hard work, your investment will also protect the environment whilst making life better for the miners and their communities.

When investing in jewellery it is worth noting that there are differing options open to you and worth speaking to your insurance provider about the variances. Depending on how much jewellery you actively wear and whether you keep the jewellery in a safe or bank’s deposit box alters your premium..

Sifting on a gold mine?

Of course the other way to introduce gold to your portfolio is by learning the ancient skill of gold panning.¹³With many courses available across the UK you can head down to the rivers and find your own treasure.

Without an X marking the spot, gold is in limited supply and with an ounce of gold buying roughly the same amount of goods today as it did 100 or 200 years ago¹⁴ its scarcity protects it against the rise of inflation.

Vincent Thurkettle, the former president of the World Gold panning Association and a full-time gold prospector found Britain’s biggest ever gold nugget worth over £50,000 “I know it sounds a bit cheesy, but I value the memories far more than the gold. Thinking back to time spent by the river with giggling, splashing, laughing children – or with dear friends – my hours with them cannot be repeated!”¹⁵

Ahoy there!

If you are considering investing in gold jewellery, sovereigns or bullion, and would like further advice in regards to insuring against the threat of pillaging pirates (or the more common house burglar) then please do contact Lloyd & Whyte. Lloyd & Whyte, What matters to you, matters to us.