Gold and economic turmoil
Gold has proven itself an effective hedge in times of economic uncertainty. The precious metal can protect personal wealth against inflation, currency devaluation and broader uncertainty. Considering this, it’s apt that the yellow metal is currently riding high.
The value of gold is reliant on the demand to buy the precious metal, which during this time of economic crisis is currently high. Historically, gold also acts as an effective hedge against inflation and currency devaluation.
There are many ways to buy gold. In this article, we will compare the benefits of buying physical gold with paper gold and how blockchain is adding confidence to the origins and history of gold bullion.
Is it time to buy gold?
The past few weeks have reinforced the reality that gold’s value can be volatile. These ups and downs are driven by continued inflation and the permutations of the war in Ukraine. At the time of writing, 20th April, the gold price sat at £1,491 per troy ounce. In April, the price has been as low as £1,463 and as high as £1,518.
With gold’s price volatility, it pays to keep an eye on price movements to time your purchase favourably. As little as a couple of days can make a big difference to the price you will be offered. We recommend regular checks of our price chart to understand price fluctuations and the current state of the market you’re investing in.
When you feel like you are familiar with the movements of the market you will want to consider what type of gold you would like to invest in. Depending on your preference, you can either opt for physical gold or choose to go down the paper gold route.
Paper gold: Everything you need to know
Paper gold is an informal way of referring to gold investments such as gold exchange-traded funds (ETFs), gold futures or a combination of an ETF and gold futures.
An ETF is a fund that tracks the financial markets, it could be an index, specific sector, asset or a commodity such as gold. Paper gold is an ETF that tracks gold as a commodity. ETFs can be purchased and sold on the stock exchange in the same way as regular stocks.
Gold funds are often in the form of gold shares held by banks. Most commonly gold funds take the form of gold futures. A gold future is a promise to buy or sell gold at an agreed price on a confirmed date.
How physical gold and paper gold differ
For buyers of physical gold, the main difference between paper gold and physical gold, and one of physical gold’s most alluring benefits, is that physical gold has a fundamental value. Physical gold has various uses, such as in jewellery and electronics, it’s not simply the purview of investors.
Contrast this with paper gold, especially futures, which fluctuate in price as investor confidence rises and falls.
The most concrete difference between the two methods of investing in gold, is that when you buy physical gold you receive a tangible asset. With paper gold, you hold a certificate of ownership or a share which has not yet been ‘cashed in’ for the yellow metal.
Paper gold and physical gold compared
Physical gold’s value is driven by the fact that it is a scarce commodity used in manufacturing and luxury products around the world.
Paper gold’s value is shaped by market sentiment, making its price less predictable than physical gold.
Physical gold is a tangible asset and is easy to verify.
Paper gold is purchased under the arrangement that third-party sellers verify and manage your investment. There is 200 hundred times more traded paper gold than actual physical gold available. This tells you how much risk there is in the paper gold markets. It is impossible for all investors to draw their investment at one time.
Owners of physical gold are encouraged to arrange secure storage. We recommend a safe you manage or UK Bullion’s high security storage vaults.
Paper gold is mostly digital meaning there is no need to worry about storage.
Buy physical gold like an expert
Whether you choose paper gold or physical gold, researching the market is essential. If you go for physical gold look for a seller with a proven track record and a history of positive customer reviews; these are two key factors which will mean you’re in safe hands.
You will want to be able to verify that the seller is actually selling what they describe, especially that the metal’s purity is as listed. Buying from unverified sellers on online marketplaces such as eBay can mean you are left with gold plated items, rather than the bullion or coins you thought you were buying. One way to verify whether an item is genuine is its price; compare it to reputable sellers’ pricing and the gold spot price. If it is suspiciously low in comparison, there is a good chance it is not genuine.
The emergence of blockchain
Recent developments in the gold markets have seen blockchain technology being used to validate the provenance of individual gold bullion bars. A blockchain is a digital decentralised public ledger, used to store information in such a way that it cannot be forged or altered.
From its roots in the world of cryptocurrency, the usage of blockchain is expanding across sectors. It’s now being used to validate supply chains in a variety of different industries.
The gold industry is keen to adopt the new technology as it offers the opportunity to track every piece of bullion in circulation, meaning every gold bar’s life-cycle from mine to vault will be verifiable in the future.
This precaution will prevent gold with questionable origins from entering bullion markets. Once blockchain is fully implemented into the production cycle, it will be possible to confirm that any bullion bar you purchase has come from a safe and ethical source.
Gold coins or bullion bars? Invest in physical gold today
At UK Bullion, we can provide you with a wide selection of gold coins and bullion bars. So, whether you’re making the switch and have invested in paper gold in the past, or you are new to the world of gold investment, we can help you choose from a range of different weights and styles.
Some of our most popular products include:
If you have any questions about buying gold, please contact us today, we’d be delighted to help.