The rise in gold price over the last 3 years has seen a surge in interest for gold investments.
The traditional route for many investors was purchasing physical gold in the form of bars or coins. Often held in a secure vault.
But times have moved on – today there are better alternatives.
How do traditional gold brokers work?
A traditional gold dealer, will arrange to purchases physical gold for you, usually from a wholesaler.
You can choose for your gold to either be delivered to you, to store personally, or held in a vault at their preferred storage location.
Self storage of gold comes with considerable risks, so many opt for secure storage in a vault.
However the price you pay can be opaque, as it’s often determined by the gold dealer rather than market prices.
Predominantly gold dealers make money from the spread, between what they pay for gold at wholesale, and what they sell it to you for.
This means for small investments in gold, you could pay as much as 6-7% over the gold spot price (the actual market price).
Buying gold in this manner is also entirely unregulated – which leaves questions around the costs you’re paying, storage arrangements, and investor protection should the worst happen.
What is a gold backed investment fund?
An alternative for investors is to use a gold backed investment fund. These come in a two main forms.
- Either 100% backed by physical gold bullion held in a secure and audited vault.
- Or, they use derivatives to track the price of gold.
For most people, physical gold funds are less complex and the risks are easier to understand.
As regulated investment funds, they are closely supervised. You can even see auditors reports and the bar count, containing the individual bars held by the fund.
For investors, economies of scale mean fees can be substantially lower. The best value funds charging a management fee (including storage) as low as 0.1% per year.
And using a fund allows you buy smaller amounts of gold at rates closest to the gold spot price.
Certain funds even allow physical redemption. So if you own the fund, rather than selling your holding of units on a stock exchange, you can opt for the underlying metal to be delivered to you.
And unlike individual gold bars, you can hold an investment fund inside of a tax wrapper, like a SIPP, ISA or Offshore Bond.
Which fund managers offer gold funds?
These days most major fund managers and financial institutions offer some form of gold fund.
With many funds looking after billions of dollars of client assets.
Financial institutions like iShares, HANetf, Swisscanto, State Street, XTrackers, Invesco, and WisdomTree are popular choices.
The key considerations as which fund may be right for you, comes down to:
- Costs
- Fund size
- Domicile
- Liquidity
- Physical gold or derivative based.
- Vault storage location
- And availability in your jurisdiction.
How do costs compare to traditional gold dealers?
So you can see the difference, we’ve compared the spread and prices for buying gold, through a traditional gold dealer like the UK Royal Mint, versus using a gold investment fund.
| Traditional Gold Brokers | Gold Investment Funds | |
|---|---|---|
| Initial Purchase Fees | Up to 7% based on the spread charged above market prices. | 1% initial set-up fee. |
| Ongoing Fees | Storage and insurance costs up to 2.4% per year . | Investment account custody fees usually range from 0.3-0.5% per year. For the best value funds, fund management fees range from 0.1-0.6% per year. If you’re receiving ongoing advice or financial planning related to your investment, you’ll pay an additional fee for this. We charge 1% per year. |
| Redemption Fees | £10 per withdrawal. | None. |
| Total Cost Over 5 Years | If you bought gold from a traditional broker, held it for five years, then sold it. In total you’d pay 3.8% per year. | Using a gold backed investment fund, over five years would cost 1.75% per year. Less than half the annual cost. |
Is gold still a good investment in 2025?
Gold can act as a diversifier for your investment portfolio, but it’s certainly not the only asset you should be considering.
This is because it’s common for very long periods, for gold to underperform other asset classes, and even inflation.
The chart below shows the performance of gold over 5 year periods, since 1990 – compared to US Stocks, Developed Ex-US (EAFE) Stocks, and Emerging Market (EM) Stocks.
As you can see, through most periods, gold underperformed equities. But in the worst periods for equities, it was very resilient.
This is why I see gold as something which can complement a diversified portfolio equities and bonds.
Rather than speculating on future prices, the right portfolio for you should be selected considering your future income needs and lifestyle costs. With assets chosen deliberately to support your future.
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