Each has their advantages in terms of tax-effectiveness and flexibility when it comes to buying and selling. So should you buy either gold or silver, or buy both? We take you through the facts and make our recommendations.
What are the advantages of gold bullion?
Gold is renowned as a safe investment, and its ability to consistently hold its value appeals to governments, banks and investors alike. Whilst the price of gold may have the occasional stumble, the overall trend is a steady, almost inexorable rise. In the three years from 29.5.2017. to 29.5.2020. the LBMA (London Bullion Market Association) gold price rose from $1,265.50/oz. to $1,720.25.
Of the many ways you can own this precious metal, bullion is the most popular and practical. Bullion, whether gold or silver, means bars or coins. It is physical and therefore tangible – you can store it at home or in a vault, and get your hands on it easily when you want to sell.
One of the key advantages of investing in gold bullion is its tax-efficiency. Nearly all silver bullion is subject to VAT, but gold bullion is VAT-free and certain gold coins are also exempt from Capital Gains Tax (CGT).
CGT exemption can be a major advantage if you sell, give away or otherwise dispose of assets and make a profit of £12,300 or more; if the assets include British legal currency gold coins, they will not attract CGT. Including CGT-free gold coins as part of your assets could potentially bring the taxable total below the £12,300 threshold, meaning you avoid paying CGT altogether.
Are there drawbacks to investing in gold?
There may be drawbacks, depending on how you invest in gold. Electronic or virtual investments, such as a Gold ETF (Exchange Traded Fund) have been the target of fraudsters and an unfortunate few found their investment was non-existent. In any case, with a Gold ETF you need to be aware that you don't physically own the gold; in effect, you're paying for the contract which defines your investment.
Whilst a more tangible way to invest in gold is to buy gold jewellery, this also has its disadvantages. Although the jewellery you choose might be spectacular and appealing, the actual gold content will only account for part of its cost. The price will also reflect the jeweller's time and skills, any other precious content such as diamonds, and possibly VAT as well. Jewellery tends to be fragile and any damage will instantly devalue your investment. Gold bullion is rather more robust – though we don't recommend you throw it around!
Gold bullion is therefore the format we recommend for gold investors. Just be aware that if you put all your money into a single 1kg gold bar, it's not possible to split that investment if you just want to access a small percentage of its value. Several smaller gold bars or gold coins to the same value will give you much more flexibility.
What are the advantages of silver bullion?
Silver may not rank as highly as gold in terms of perceived value, but it can nevertheless be a worthwhile investment. Like gold, there is a finite supply, so it will never be suddenly worthless. However, the comparatively smaller quantities involved in silver trading mean that market fluctuations will have a more dramatic impact.
This volatility is both an advantage and disadvantage, depending on whether you're buying or selling and when you choose to do so. The price per ounce for silver on 15.5.2017 was $16.60, and $17.07 on 15.5.2020., but between those dates it rose to $18.31 and fell to $14.27 (ignoring the brief and extreme market spike caused by COVID-19).
These wide variations mean silver bullion is best regarded as a long-term investment, with a bullion investment strategy that allows you to sit out market troughs and sell during the peaks.
Of course, if you're buying those troughs are good news, and anyway silver bullion is much more affordable than gold because of its lower price per ounce. Silver is available in the same quantities as gold, down to one-twentieth of an ounce from some source, so you can buy small pieces in larger quantities. This gives you correspondingly more flexibility when you want to sell. Should you need to raise funds even when the markets are down, you'll suffer a much smaller loss than you would with the equivalent amount of gold.
Do remember though, that VAT (currently 20% in the UK) will be charged on your sales, so to make money on silver you need to account for that when choosing your moment to sell.
Why do some people say silver is a bad investment?
There will be pros and cons with almost any investment. We wouldn't say silver is a bad investment – as we've already explained, it has much to offer – but there are some other factors which you should consider.
Silver is used for many purposes other than investment. As it is reflective, conductive and even has antibacterial properties, silver has numerous applications in industry. Consequently, the demand for silver rises and falls along with the demand for the industrial products that use it.
In weak markets, falling sales of those products amplify silver's volatility, pushing prices down further. So just when you might want to realise some of your silver's value to help bolster your finances, the price you receive may be disappointing. Conversely, at least it will be cheaper to buy; a silver lining, you might say!
The other main consideration is that as silver is worth less than gold, you would need to buy much more of it to match a corresponding investment in gold. This is known in investment circles as the gold to silver ratio.
In the last five years, the ratio has varied from 65.68 to 124.10, although that peak coincided with the peak of the COVID-19 pandemic. At the time of writing, it is a more representative 99.43. Translate that into physical terms, and you can see you'd need to store around 100 times more silver to achieve the same value in gold. Depending on whether you're storing in a vault or in hidden, secret locations around your home, the effect can either be considerably more costly or inconvenient.
What gold or silver should I buy?
Gold bullion and silver bullion both offer worthwhile, dependable and reassuring investments. Bullion is tangible, easily traded and unlike ETFs or shares in silver or gold mines, accessing your money shouldn't be complex or time-consuming.
You can buy gold bars in sizes to suit your finances and investment strategy. To give you an example, we supply Umicore bars in 1g, 2.5g, 5g, 10g, 20g and 50g, 1 ounce, 100g and up to 1kg. Gold coins offer an even greater choice, with various denominations minted in numerous countries, across many centuries.
Silver bars are available in similar sizes to gold bars, and of course at much lower prices. Bear in mind a low weight silver bar, such as 2.5g, will be very small – around 22mm x 13mm and less than a millimetre thick, so you will have to store it carefully to ensure you don't lose it!
Investing in silver bullion coins
Coins certainly offer more interest than bars. There are many different gold and silver designs available, but if you want to make sure they are not subject to Capital Gains Tax (CGT), then you will need to choose coins that are British legal tender, with a UK face value. This means buying coins from the Royal Mint's range: in silver, the Queen's Beasts series, Lunar Series and Silver Britannias.
The Silver Queen's Beasts coins are minted in a series of ten heraldic designs, in 2oz. or 10 oz. silver. The 2oz. coin has a face value of £5, whilst the 10 oz. has a face value of £10. The Silver Britannia from the Royal Mint has a face value of £2, but of course the market value of all these coins is much higher.
As prices for small amounts of silver – say a 1oz. Silver Britannia – are relatively small, you could even treat it as fiat currency, i.e. like banknotes but with the reassurance that it will have more buying power than paper money, if a government's currency is devalued.
Remember that if you buy silver coins and keep them yourself, you will have to pay VAT on them. Some dealers will sell them to you as VAT-free, on the basis that they store your coins; however, if you ever ask to have them delivered to you, the VAT will become payable.
Investing in gold bullion coins
British legal tender gold coins also include the Queens Beasts and Lunar series, Gold Standard, Royal Arms and Gold Sovereigns and Britannias.
Face value denominations range from £10 for the 1/10 th ounce Gold Britannia, to £100 for the 1oz. flagship version, for which you should expect to pay at least fifteen times its face value. With a wide choice of sizes, these coins represent a relatively affordable route into gold investment.
They are minted in limited numbers and many are quickly snapped up by savvy investors, so you may need to consider alternative coin ranges or years of issue, to create the investment you want. Remember that unlike other gold investments, these gold coins are VAT and CGT-free, and represent a reliable, easily stored and enjoyable basis for starting or building your investment strategy.
Should I buy gold or silver coins?
We'd say buy both. The wise investor has a diversified portfolio, so that a sudden dip in the value of one of their investments won't wipe out a huge percentage of their fund. Gold, as we've seen, generally rises steadily in value, but not spectacularly.
Silver investment performance is much more fluid, giving you more opportunities to make rapid profits or buy cheaply.
A mixed gold and silver investment will give you the best of both worlds, with the dependability of gold and the flexibility of silver.