There’s gold in them there hills… or is there?
Many of today’s retirees remember what happened with gold back in the 1970′s when it took off on a long bull run. For those looking at investing today it’s worth reviewing what happened back then.
Why?
Because in case you have not noticed, there has been a big kerfuffle in gold investing lately with a long bull market suddenly reversing almost overnight.
In cases like this, reviewing historical data should always be the first (and prudent) path to take when evaluating any investment. Some commentators have suggested the recent gold price crashes mean the long bull run in gold is finally over, but others suggest not. I will explain later the reasons why these contrarian ‘gold bugs’ feel the bear market will not remain for long. They believe looking at the investment in the context of the surrounding data backs up their case, but as I say, we’ll return to the arguments for and against later.
First though, lets examine how to use a pension as the vehicle to invest in gold should you wish to explore doing so.
If you already have a pension then you can add a new Self Invested Personal Pension (SIPP) alongside it or you can transfer a current pension into your new SIPP.
Individuals will need to use a SIPP while companies will must set up a Small Self Administered Scheme for their occupational pension needs.
Let’s look more closely…
SIPP
In 2006, the UK government allowed individuals to make gold bullion investments into pension plans to provide a safe and tax efficient way to prepare for retirement. Because of this gold investment in a SIPP will attract up to 40% income tax relief. Further still, the Government also provide Capital Gains Tax (CGT) exemption on gains made by the gold being held in your account.
For many these benefits offer an extra incentive to add gold as an asset to their portfolio by wrapping the investment in a SIPP, considering it another plank in their retirement plans.
So how do you go about it?
Gold can be purchased in the following ways…
- Physical Gold
- Segregated Bars
- Gold Certificates
- Gold Mining Stock Investments
Important..
The gold you purchase must be of ‘investment quality’ with purity of a minimum of 99.5% to be approved for your SIPP. You cannot purchase gold coins such as Sovereigns or silver as investments in your SIPP either. Investment grade gold bars, referred to as ‘London Good Delivery’ or ‘good delivery’ bars as they are more commonly known are approved. These are certified as having been kept in London Bullion Market Association (LBMA) accredited vaults, which maintain strict controls on the quality and purity of the gold securing your retirement asset.
Segregated physical gold bars are probably the safest way to invest and they are an approved product that may be held in a SIPP or SSAS. Segregated bars also offer investors less risk than any other gold product. At the other end of the scale ETF’s (Exchange Traded Funds) carry a number of risks your financial advisor can outline for you, but today we are discussing investing in real gold, not paper gold for your pension plan.
I wouldn’t recommend physical gold grams though because they get pooled together with other people’s gold because buying them you would basically own just a ‘slice’ of any given gold bar. This makes storage and selling your asset more difficult.
For storage purposes, reputable bullion vendors offer secure storage with 24/7 access and the ability to easily sell to anyone you choose as and when you wish, including back to the vendor at guaranteed prices.
As for keeping track of everything though that’s pretty easy—the trustee of your pension fund will handle all the details of purchasing the gold for you, and provide regular updates regarding the performance of the precious metal.
Come retirement…
When you retire you basically have two choices as to what to do with your SIPP; you can either draw down a retirement income from it as and when required by selling the gold as needs require or purchase an annuity at that stage which will guarantee to pay you an agreed income for the rest of your life from the insurance company you bought it from.
SSAS
Using an SSAS to invest in gold is somewhat different than a SIPP.
The definition of ‘small’ in the title of SSAS designates a group pension for twelve members or less. As a company, different rules must be followed and investment decisions are not made on an individual basis, and proceedings are generally overseen by an independent trustee. Using a SSAS requires a financial advisor with expertise in this area, and he or she will guide you through the different options offered if your company wants to invest in gold for an occupational pension.
Finally, what has the performance of gold been like?
Great question…
Over the last 11 years, gold has returned an average rate of 17%, which is a solid return. (Past performance is not an indicator of future performance and you may get back less than what you put in)
Now lets bring this to a close with some final observations…
The dollar is falling out of favour as the world’s reserve currency. The USA is losing its influence in determining gold’s future and the Russians and Chinese governments are filling the vacuum with gusto. As such they are rapidly gaining a level of dominant influence—one that certainly seems to signal the dawn of a new era.
Russia, India and China are purchasing gold at record levels. As these countries continue emerging as wealthy nations, the general population’s desire to purchase gold is surging, no less in part because valuing gold as a key investment has been hard wired into their psyche from time immemorial.
They are all buying, and the more they buy, the less there is to go around…which of course drives the value higher still.
Historically, in rocky economic times gold has always been used as a safe haven. I have been writing this blog on financial advice since 2007, and I don’t see market volatility decreasing in the near future, due to sovereign debt issues, quantitative easing and inflationary worries everywhere. Japan’s new ($1.4 TRILLION!) leap into quantitative easing within the past few weeks confirms that further.
Some see gold just as an insurance policy because of these circumstances, but there are others here in UK, who wishing to take advantage of the 40% tax relief and CGT exemption, are taking things a step further by allocating the asset in a SIPP.
Personally, I don’t see the price of gold dropping much further, because around £950 per ounce is roughly what it costs to produce it in the first place. Of course I could be wrong, but when I see the likes of China, Russia etc still buying as much gold as they can lay their hands on, I remain cautiously confident that any current bear market in gold will not remain too stagnant for long.
If you would like to discussing setting up a SIPP or SSAS for gold investment, then I’d be happy to chat through the options available for you or your company. Call me free from a landline at 0800 321 3508 or direct to my mobile : 0757 679 1009, I’ll be happy to help.
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William George has been a Financial Advisor since 1993. From Dunfermline, Fife in Scotland, he services clients across UK, as well as expats from as far afield as New Zealand. He also has appeared on BBC Radio Scotland discussing investing and specialises in helping people with Retirement Planning and Pension Advice. Google+
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