In uncertain times, investors turn to the security of gold and anyone who has done so recently has done themselves proud.
With the price hitting fresh 18-month highs well above $1,000 an ounce in the past week or so, it is not just mining shares and commodities funds that are proving attractive. Many investors want physical gold that they can lay their hands on – even if it is entrusted to a bullion vault.
But does gold have any place in retirement planning? An increasing number of investors seem to think so – or at least they are using a pension vehicle to buy it and hold it.
Sipp investors have been allowed to invest in gold since April 6, 2006. For a higher-rate taxpayer, tax relief on the contribution used to buy the gold allows the investor to buy bullion for as little as 60 per cent of the market price (assuming a 40 per cent pension tax relief) and pay no CGT on any gains.
However, facilities for buying bullion to put into a Sipp have been fairly limited, with only a handful of specialist providers offering the service. The latest of these is Pointon York Sipp Solutions, which has just forged a relationship with the company Physical Gold.
Informed Choice chartered financial planner Martin Bamford says: “Investing in physical gold through a Sipp appeals to some investors because it involves investing in a tangible asset. The other gold invest- ment options, including investing in the shares of mining companies or in gold exchange traded funds, do a reasonable job of reflecting the price of gold but only by investing in bullion do you have the satisfaction of really owning the asset.”
The rules state that you have to have “gold of a purity not less than 995 thousandths that is in the form of a bar or a wafer of a weight accepted by the bullion markets”. This rules out gold coins such as sovereigns and pretty much means gold bars.
The attractions of investing in gold are clear, particularly as part of a diversified investment portfolio, since performance is not correlated to other asset classes.
But there are downsides in opting for physical gold, not least the cost of storage and choosing a vault. You need to find a reputable third party to keep your gold secure – and you may have to do this yourself.
Hornbuckle Mitchell, for instance, does the paperwork for gold bullion held in Sipps but expects clients or referring IFAs to source their own storage.
Bamford says: “For Sipp investors it would probably be cheaper and easier to invest in gold using an exchange traded fund such as ETF Securities’ ETFS Gold, which is designed to track the Dow Jones UBS Gold sub-index and is listed on the London Stock Exchange.”
Towry Law Wealth Advisers investment management specialist Dan Looney says: “Towry Law holds gold in client portfolios but only uses ETFs which track the price of gold.”
Friends Provident pensions product manager Dan Hawkins believes that holding physical gold is only ever going to be suitable for ultra-high-net-worth individuals. He says: “It is only for clients at the bespoke end of the market who want something to speculate or ‘play’ with.”
But Physical Gold CEO Dan Fisher expects the market to grow. He says: “We expect take-up to be significant, Investing in physical gold through a Sipp appeals to some investors as it involves investing in a tangible assetas there are very few Sipp providers offering physical gold into a pension portfolio. Most pension savers have experienced significant falls in their pension value for the past two years and the necessity for balance is more apparent than ever to avoid these nasty market shocks. Gold is the missing link in most people’s investment portfolios.”
Several gold commentators are predicting that the price of gold could continue to rise but Bamford says: “Investing in gold is clearly quite topical but I would question the wisdom of investing more than 5 per cent of a well diversified portfolio in this asset class.
“Unlike cash, fixed-interest securities, equities or property, gold does not pay an income, so the return can only come from capital values.”