Monday, 2 September 2013

Buying Gold Tax Efficiently

Kitco tells me that Gold when priced in USD’s closed on Friday at a nominal $1,395.50.  Convert that into GBP’s and you’re looking at a Nominal Gold Price of £899.35.  Staying in Sterling that is a Nominal Gold month on month price rise of 6.1% and a year on year price fall of 13.1%.  The chart below shows the Nominal Monthly Gold Price in £’s since 1979.

Monthly Gold Prices in £’s
Click to enlarge

If we then adjust this Gold chart for the continual devaluation of Sterling through inflation we can see Real Gold Prices which are shown in the chart below.  If this is of particular interest then you might also be interested in understanding if Gold can protect UK Investors from inflation.  The key Real Monthly Gold Price metrics are:

  • Real Gold Peak Price was £1,196.28 in January 1980.  At £899.35 we are 24.8% below that peak today.
  • The long run Real average is £544.05 which is therefore still indicating a very large potential overvaluation.
  • The trendline indicates the Real Gold Price should today be £515.36 which would indicate even further overvaluation.  

Real Monthly Gold Prices in £’s
Click to enlarge

I hold Gold within my own Low Charge Portfolio.  The target allocation is 5% of my total wealth and like all of my investments I aim to hold it as tax efficiently as possible.  Let’s have a brief look at just how crucial this is.  Let’s say you were the opposite of Gordon Brown and so while he was selling 60% of the UK’s Gold reserves at record lows between 1999 and 2002 you were buying and invested £10,000.  You might have then achieved an average buy price of around £188 meaning today you would be sitting on an asset worth some £47,900.  If you weren't tax efficiently invested, were a 40% tax payer like myself and needed to sell today then HMRC would relieve you of £7,560, even after allowing for the 2013/14 Capital Gains tax-free allowance.  Personally I’d prefer to keep that for myself.  So what options do we have?

In the UK we actually have a few options.  These include:

  1. You can just simply hold gold as mentioned above and then just sell down annually at a rate that means you don’t have gains exceeding the CGT tax-free allowance.  If you’re going to go this route via an ETC or ETF make sure it’s a UK Reporting Fund or you’re going to have a very different problem.  While I hold some gold this way it’s not my preferred option.
  2. You could buy Gold coins from a dealer like Coin Invest Direct.  Provided you buy Gold Sovereign’s (from 1837 onward) or Gold Britannia’s these coins can be sold Capital Gains Tax (CGT) free in the UK.  This is because all British legal currency is exempt from CGT.  Even though this is an attractive method from a tax perspective it is also not my preferred route for two reasons.  Firstly, the buy and sell spreads are typically wide and secondly, if you hold physical like this then you have to find somewhere to store it safely.
  3. You can simply hold approved ETC’s or ETF’s in an ISA.  This is my preferred route.  I choose to hold ETF Securities Physical Gold (ticker: PHGP), which is physically backed with allocated metal subject to LBMA rules for Good Delivery. 

My brief research of the US suggests that our US based readers don’t seem to have it so good.  One option looks to be to place it within an IRA.  Resources such as are detailing the method.  Do any US based readers have firsthand experience of gold investing tax efficiently?  It would be great to hear from you.

As always do your own research.

Assumptions include:

  • Last gold price actual taken 30 August 2013. 
  • All other prices are month averages taken from the Bank of England. 
  • August 2013 inflation is extrapolated from the Retail Prices Index (RPI).


  1. We've split our gold ETFs between one that uses a vault in London, and one that uses Zurich. You never know.

  2. What I do not understand about the adjusted price is that if gold is >70% overvalued at the moment, why is the general message that at about the current price (a tad lower) we are close to the break even production price? Does it question the validity of the inflation data, is the break even price bandied around rubbish or does it have little bearing on the value of gold (i.e. the mines and refiners simply shutdown when it goes below)? India and China still love the stuff and their population and wealth are (medium/long term) increasing.