Why Should You Buy Gold? The Benefits And More Explained

Gold shines in shaky times. When stocks slide, and bonds wobble, gold stays steady, shielding wealth. Smart investors worldwide put some gold in their portfolios.

In this guide, we’ll look at gold as an investment. You’ll see why central banks keep buying bars and how regular investors use gold in their portfolios. By looking at gold’s long history and benefits, you’ll see why it holds strong when paper assets vanish.

Join us in uncovering the unique qualities of gold, and what makes it such a good investment vehicle. In this guide, we will:

• Relive Gold’s Lasting Appeal: We’ll look at gold’s history and why it keeps its value.
• Reveal Gold’s Investment Benefits: I’ll explain gold’s advantages, from stabilising economies to tax perks in the UK.
• Compare Gold to Other Assets: We’ll see how gold stacks up against mining stocks and platinum.
• Appreciate Gold’s Wider Role: Gold is more than an investment – it’s also currency, emotional support, and a legacy.

There is a lot to discuss so we felt an infographic was ideal, this visual format conveys a lot of information in an easy to consume manner. This infographic can be found on this link.

Historical Stability and Value

Gold has maintained its purchasing power and value for centuries. Ancient Egyptians and the Chinese used gold as the basis for their monetary systems.

During the Gold Standard period in the late 19th and early 20th centuries, major currencies were pegged to and backed by gold. Even now, when fiat money has replaced the gold standard, gold remains a trusted store of wealth. For instance, an ounce of gold today would buy you a high-quality suit, just as it did 100 years ago.

Gold has also reliably kept pace with inflation over time. According to 2022 The Relevance of Gold as a Strategic Asset report by the World Gold Council, gold prices increased at an average annual rate of 10% from 1971 to 2021, outpacing inflation. This historical stability and value make gold a compelling inflation hedge and crisis commodity for investors.

Economic Resilience

Gold has demonstrated impressive resilience during major economic crises when other assets often suffer. For example, during the 1970s oil crisis, gold prices rose over 1000% while stocks tumbled. More recently, in the 2008 financial crisis, the S&P 500 fell 38%, but gold posted gains of over 25% as investors fled to its safety.

Gold acts as a hedge and safe haven in times of economic uncertainty. Its prices often move inversely to stocks, bonds, and real estate. This negative correlation with other assets makes gold a portfolio diversifier that can mitigate losses when markets are volatile.

For ordinary investors, allocating a portion of assets to gold can provide insurance against market turmoil and tail risks. As macroeconomic storm clouds gather, gold remains a time-tested way to stabilise portfolios.

Hedge Against Inflation

With inflation recently reaching its highest level in 40 years, guarding against the diminishing purchasing power of cash is top-of-mind for many investors. Savings lose value over time if inflation outpaces interest rates earned at banks. Even with higher interest rates offered on some savings accounts than a couple of years ago, real returns after inflation are negative.

Gold, on the other hand, has proven itself as an effective inflation hedge over the long run. By providing a hedge against rising prices, gold helps protect the buying power of investors’ money.

In times of high inflation triggered by economic turmoil, gold prices often spike as investors seek safe haven assets. For example, from 1978-1980, inflation soared, reaching nearly 15% in the US. Meanwhile, gold prices skyrocketed from around $200 to over $800 an ounce.

More recently, gold rallied to record nominal highs above $2000 an ounce in 2020, partly driven by economic damage from the pandemic. With central banks globally still grappling with high inflation, elevated gold prices indicate it remains a trusted hedge. Allocating a share of assets to gold can help investors maintain purchasing power over the long term.

Beyond being a historically stable asset and inflation hedge, gold offers several other key benefits that make it an attractive investment option, especially as part of a diversified portfolio.

Gold represents a tangible asset of limited supply. All the gold ever mined would fit into a cube with sides of just 20 metres. With annual mining output meeting only a fraction of demand, gold’s rarity supports its value.

While gold prices fluctuate, they have appreciated significantly over the long run. For example, in August 1970, gold traded at around £35 per ounce. By August 2011, it had soared to over £1,100. Gold has the potential for meaningful portfolio growth for UK investors with long time horizons.

Gold investment enjoys certain tax advantages that can enhance net returns for British investors. In the UK and EU, gold bullion is exempt from VAT. Coins issued with purity of 22 carats or higher, are likewise VAT-free. This reduces an investor’s upfront costs compared to buying taxable assets.

Gold may also receive beneficial Capital Gains Tax treatment.. For UK private investors, coins classified as legal tender such as Britannias and Sovereigns are exempt from CGT. Any profits realised on sales of gold bars are still liable for taxation though. By contrast, most investments including stocks and property are subject to CGT on gains.

Gold’s tax-advantaged status gives it a leg up over some other assets. The VAT exemption lowers the entry cost, while the potential CGT exemption reduces the tax burden on long-term appreciation. These incentives can meaningfully improve net investment performance over the lifetime of a diversified portfolio.

Astute British investors may reap tax rewards by judiciously adding physical gold to their holdings following expert tax guidance. When structured properly, gold offers the twin benefits of portfolio diversification and tax optimisation.

Beyond its investment merits, physical gold also holds unique value for inheritance planning and preserving family heritage. Collectable gold coins can become cherished heirlooms passed down to future generations. The timeless lustre and beauty of a gold coin or jewellery piece make it a meaningful legacy gift.

Historic gold coins like British Sovereigns and South African Krugerrands may appreciate significantly in value over decades, making them treasures worth bequeathing. Some ultra-rare coins sell for over £1 million at auction. While bullion has lower collectable premiums, it can still make a fine inheritance.

Gold jewellery crafted into iconic family emblems can carry on tradition and meaning. An ancestor’s engraved pocket watch, brooch, or bracelet serves as a personal memento full of nostalgia. Melting down scrap jewellery to recast it into new heirloom pieces allows a family’s heritage in gold to continue.

For British investors, physical gold represents a gateway to connecting past and future through heirlooms. Passing along precious pieces embodying beauty and rarity awakens powerful human emotions beyond just investment value.

Use our automated portfolio builder and see just how far your investment can go.

While gold appeals to investors as an asset, it plays a number of additional roles. Learn more about why buying physical gold is a wise decision for many investors.

Currency Role

Gold has served as the basis for money for centuries and still comprises reserves backing many currencies today. Some economic analysts predict a return to financial systems underpinned by gold as central banks lose control of runaway inflation and debt. Investors increasingly recognise gold as the ultimate currency with no liabilities attached.

Uncorrelated to Stocks

Gold prices often move independently from equities. While stocks tend to rise with economic growth, gold offers a counterbalance as a stabilising safety play during recessions. Adding some gold to a portfolio provides balance.

Emotional Hedge

Gold possesses an emotional appeal unmatched by paper assets or digits on a screen. Its radiant and luxurious physical properties imbue it with intangible value against fear and uncertainty. This metaphysical dimension drives demand, especially during turbulent times.

In summary, gold transcends commodities and equities by fulfilling monetary, psychological, and aesthetic roles. British investors aiming for robust crisis protection may consider holding a portion of their wealth in history’s most enduring tangible asset.

In today’s turbulent markets, gold remains a prudently counter-cyclical asset for British investors seeking to diversify their holdings. While past performance does not guarantee future results, gold’s enduring role as a crisis hedge and store of value cannot be denied. Allocating a portion of long-term investments to physical gold, held domestically or in secure global vaults, can provide portfolio ballast to weather coming storms.

Gold’s portfolio diversification benefits, inflation protection, tax advantages, and role as legacy wealth are just some of the reasons to consider adding it as part of a comprehensive investment plan. While mining stocks and ETFs offer other ways to gain exposure, physical coins and bars deliver safety from counterparty risks. As economic uncertainty swirls, the stable golden constant stands ready to shine.

New gold investors often have questions like:

What are the advantages of investing in gold?

The key advantages include portfolio diversification, stability, heightened demand during crises, protection against inflation, and tax benefits in the UK. Gold has a low correlation to stocks and bonds, reducing overall portfolio volatility. It carries no counterparty risk and maintains value over centuries.

Is it a good idea to invest in gold?

Many financial experts recommend allocating 5-20% of investment assets to physical gold. It hedges systemic risks like inflation, currency debasement, and market crashes in ways other assets can’t. Gold’s long history as money and store of value makes it a prudent component of any enduring portfolio.

Is gold taxed in the UK?

Physical gold coins and bars are exempt from VAT in the UK. For investors resident in the UK, certain legal tender gold coins are also capital gains tax-free. This favourable tax treatment enhances returns for British investors.

What are the benefits of owning gold mining stocks?

Gold mining stocks can generate leveraged returns during bull markets compared to owning physical gold itself. They also pay dividends associated with equities. However, they are riskier and more volatile than physical gold.

What are the benefits of the gold standard?

Under the gold standard, currency issues were tied directly to gold reserves, constraining money supply growth. This limited inflation, restrained government spending and spurred global trade. However, the gold standard also constrained policy responses to economic crises.