There are three main ways an investor can gain exposure to gold.
●Buy in through an actively-managed fund. This offers some diversification and the prospect of higher returns, as a fund will typically invest in mining company shares. The downside is that, through investing in equities, funds will be more affected by stock market sentiment. Fees will also be higher, with the popular Gold and General fund from Blackrock carrying a 5 per cent initial charge plus management costs of 1.75 per cent a year. However, these fees seem justified when looking at recent returns, which were 18 per cent in the year to the end of July.
●Hold physical gold. This is the safest form of exposure for those looking to hedge against inflation and diversify a portfolio away from equities. One way to do this is through exchange-traded commodities (ETCs), which offer the benefit of low management fees – typically 0.39 per cent a year – no entry fees, and the liquidity of a share traded on the London Stock Exchange. Each share is backed up by physical gold – in the case of gold ETCs, the bullion sits in bank vaults in London and Switzerland – meaning there is no credit risk involved.
●Buy directly from a mint. This approach may appeal to longer-term investors. One company offering this option is Gold and Silver Investments based in Dublin, the only dealer to offer government-backed gold. Stephen Flood, director, argues that the total cost works out cheaper than for ETCs – an investor buying £50,000 in Perth Mint unallocated gold pays 2.5 per cent over the spot price to buy and 1 per cent on selling, with no annual fees.
