Thursday, 13 August 2020

Industry Insights: Would you buy gold bullion from Costco?

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Industry Insights Series Q3 2020

Gerry Caley, Senior Partner

I recently received one of my regular ‘offer’ emails from Costco, and was quite perturbed to read that anyone can now buy gold bullion direct from their local warehouse. 

As a Financial Adviser I find this quite worrying as gold has recently breached the $2,000 dollar per troy ounce figure, a new high in the market. History has shown, all too frequently, that retail (non-professional) investors tend to buy into various assets at (or near) the top of the market. Quite often drawn in by glittering adverts suggesting that they are missing out on a fantastic opportunity to make a quick return. 

So, perhaps we should look more closely at gold and its uses: 
  • There is limited use for this particular precious metal, the main one being its ability to be crafted into expensive jewellery, mostly favoured by Asia/Indo Chinese communities. Under the present circumstances and with gold prices at a high it is not surprising to find that jewellery sales are far below normal levels. 
  • Gold is a good hedge against inflation, as we are frequently told, but do you see high inflation in the near term?    
  • Gold will not provide you with an income, something that is at the forefront of many investors’ minds with the recent depletion of dividend yields. 
  • As precious metals go, there are several in existence that have a far greater use in industry and whose values are nowhere near the price of gold. Does this make economic sense? Some of you may remember a certain Prime Minister (he was Chancellor at the time) who decided to sell the UK's stock of gold reserves at prices around $275 per troy ounce during the period 1999-2002. I believe that part of his thinking was that with the Dotcom bubble, inflation would not be seen for some time. 

These points all help illustrate the difficulties with valuing gold and finding the right time to buy or sell. A much safer way to hold gold would be as part of a diversified portfolio. Either directly via a physical gold ETF or using a good multi-asset fund where the managers will hold varying amounts of gold depending upon their overall view of the world markets at a particular time.  Investing this way also means it is far easier to sell your holdings if needed. 

As we consistently say, the key to investing is diversification, good active management and sound advice from your financial adviser.