Why buy physical gold?

At BullionByPost we believe that owning physical gold is the best way to invest in gold. Other options can sometimes sound appealing, but carry many risks that undermine the key benefits of gold as an asset. So why buy physical gold?

There really are numerous benefits and advantages of owning physical gold over electronic gold or paper gold. Despite more than a decade having passed since the Great Recession, there is still instability in the banking system; volatile currency markets, soaring inflation and slowing growth are all seemingly here to stay following the pandemic and ongoing conflict in Europe.

Gold offers a welcome safeguard to turbulence. Physical gold is a timeless asset which will always
have a value and always lasts the test of time. Physical gold provides the ultimate insurance for your
wealth against any future financial crisis in an underperforming wider economy.

In September 2008, the former Chancellor Alistair Darling announced that people were only 2 hours
away from not being able to withdraw their own money from British banks. At the height of the
banking crisis, Darling elaborated that the near collapse of the Royal Bank of Scotland (RBS) would
have inevitably and quickly spread to other banks if it wasn’t for a £50bn emergency bailout. That
statement alone is enough to send chills down your spine.

Despite numerous safeguards to improve the safety and regulation of banks, 2020 has shown how
quickly an unexpected global catastrophe can change the economic outlook. Trillions pumped into
the economy, and national debt reaching new peace-time records; these measures may have ensured
the short-term continuation of the financial system, but has already seen inflation climbing to levels not
seen in decades, eroding the value of money kept in the banks.

Physical Gold vs ETFs

The old adage of 'if you don’t hold it, you don’t own it' is particularly relevant here. Physical gold offers you that layer of protection and security which Gold Exchange Traded Funds (ETFs) do not.

A gold ETF is an exchange traded fund with gold being the principle and only commodity being traded. Similar to the banking crisis, ETF companies are vulnerable, unpredictable and controlled outside your hands.

An ETF may not have fully physical backing, potentially selling more gold than they have access to. In times of high demand, where customers may wish to take delivery of physical bullion this will then no longer be available to them. Even with those companies that do have full physical allocation, your assets are still being managed by another company, adding third-party risk to your investment. Back in September 2011, the ETF company London Gold Exchange closed their website stating that they were permanently closed for business.

With physical gold bullion, this would not affect you directly as you aren’t relying on any third party individual or company to look after your wealth for you, and can sell it to any company or individual you choose. With physical gold, you hold it, you have the responsibility; you are in control of your own wealth which is the ultimate way of preserving your assets and protecting yourself and your loved ones from financial ruin if the worst case scenario did happen.

Diversification:

While physical gold is a safe haven, we would not advise you to allocate your entire portfolio to gold. Physical gold should offer a new dimension to your wealth portfolio, perhaps initially investing only 5-10% of your liquid wealth. Many investors later choose to allocate higher percentages in the future but we find 5-10% is an ideal starting point. We encourage investors to spread their wealth. Portfolio diversification is an intelligent way to protect your wealth and spread risk. Just as property was a good place to invest before the 2007 crash, gold is a solid investment now. We would advise against effectively putting all your eggs into one basket as physical gold is the best way of hedging your other investments.

Spreading your investment interests across stocks, property and precious metals is a wise, low-risk way to manage your portfolio. If your stocks are underperforming, the likelihood is the gold price will over perform. It’s worth noting though, that if your short-term outlook for the wider economy is very positive, then keep your gold investment to a minimum, as it would be expected that the gold price may take a knock as the world economy recovers and begins to grow at a greater pace. It is an unlikely scenario where all investments will be buoyant at any one time; successful investors identify the right markets at the right time, with physical gold being a great exception to that rule as it is such a long term investment, there is never a bad time to own it.

History doesn't lie: