Buying physical precious metal: these are the options
Anyone thinking about buying precious metals often already has a clear idea of why you want to add precious metals to your investment portfolio. For example, to protect your assets against inflation, to spread them outside the financial system or to maintain your purchasing power in the long term. But which precious metal do you choose? Gold, silver whether platinum? And are you going to buy physical assets or do you opt for a derivative such as an ETF?
On this page, you can read what choices are involved when purchasing physical precious metal.
Buying precious metals: features, advantages and disadvantages
Gold, silver, and platinum are the most purchased precious metals worldwide. Each precious metal has unique features, benefits and risks and, depending on your situation and goal, can be a other role within your assets fulfill.
Also read:
- Gold price forecast
- Silver price forecast
- Platinum price forecast
Choices to make when buying precious metals
Step 1: Determine your investment goal
A good plan starts with a clear goal. For what purpose do you want to invest (in precious metals)? Do you especially want stability? Then gold is the obvious choice. If you are looking for extra potential returns and you accept more fluctuations, silver or platinum may be interesting.
Step 2: Decide whether you want to invest in physical precious metal or a derivative
You can purchase precious metals physically. With physical precious metal, you are direct owner of gold, silver, or platinum that actually exists and is allocated to you. This way, there is no counterparty risk and you are not dependent on financial institutions.
You don't have to worry about safe storage with GoldRepublic.
With derivatives of precious metals, such as ETFs, goldmine or silvermine stocks or trackers, you do not own a physical precious metal, but invest in a financial product that is strongly linked to the gold price, silver price whether platinum rate.
The advantage is that additional costs are often low and that tradability on the stock market is good. You also don't have to worry about storing your precious metal safely. The disadvantage is that you are dependent on financial exchanges and markets, there is a counterparty risk and you are not a physical owner of the precious metal.
For those who want to buy precious metals to protect against systemic risk or inflation, physical gold is usually a logical choice.
Step 3: Investigate the origin of the precious metal
The origin of a precious metal is essential. A reliable party prefers to work exclusively with LBMA certified smelters. These must meet strict requirements in terms of quality, origin and ethics.
GoldRepublic, for example, only works with LBMA-certified smelters such as Valcambi and Umicore. Your purchased gold goes directly from the smelter into the vault. As a result, the quality is fully traceable and is also periodically checked by a external, independent auditor.
Step 4: Take VAT into account
The VAT treatment can make a significant difference in your net return and therefore certainly deserves attention when buying precious metals.
Investment gold is exempt from VAT throughout the European Union. This also applies in other European countries outside the EU, such as Switzerland. This is one of the main reasons why gold is used worldwide as a long-term monetary reserve and store of value.
Bee investment silver and -platinum this is different.
- In the United Kingdom, investment-grade precious metals such as gold are generally exempt from VAT, while silver and platinum are subject to 20% VAT upon physical delivery. This means that, when purchasing silver or platinum, you begin with a significant additional cost.
- This VAT can be deferred via storage in customs warehouses in, for example, Zurich or Frankfurt: as long as the precious metal remains stored there, there is no physical delivery and VAT only becomes due upon delivery. In addition, when selling from these locations, no VAT is due., because the metal does not physically leave the warehouse. This can have a positive effect on returns, especially with larger amounts or longer maturities.
Step 5: Think about storing your precious metals
You can store your physical precious metals at home, but this involves high risks in terms of insurance, safety and discretion. That's why many investors opt for storage in external vaults.
This way, you are fully insured against theft and damage, you bear no risks for home storage, and you benefit from independent confirmation with GoldRepublic that your purchased precious metal is actually present and registered to you.
GoldRepublic is one of the few parties in the Netherlands that works exclusively with vaults managed by third parties. This is slightly more expensive than safes that are managed by the seller himself, but provides demonstrably more safety and security.
Step 6: Plan Your Exit Strategy
Getting in is often easy, but how easy can you convert your precious metal back into money when necessary? It is wise to check beforehand that the batch where you are buying also has a buy-back guarantee offers.
For precious metals that you keep at home, you must either find a buyer yourself when selling or physically travel to a purchasing office with your gold and silver. There, the metal often has to be tested and weighed again to verify its authenticity. This takes time, involves security risks and the price you get is often much below the current spot price (the “spread”).
When you choose to store in a customs warehouse via a party such as GoldRepublic, this process is considerably easier. Because the precious metal never leaves the secure vault and the chain of ownership remains closed (“chain of integrity”), authenticity is always guaranteed. As a result, you can often sell your position at the touch of a button 24/7 at the current rate, after which the money is transferred directly to your account. This offers you maximum liquidity and flexibility.
Also read:
Buying precious metals: 3 things to know
Precious Metals Tax
In the UK, precious metals are generally treated as capital assets and are subject to Capital Gains Tax (CGT) when sold at a profit. However, certain UK-issued bullion coins, such as Britannias and Sovereigns, are exempt from CGT as they are considered legal tender. The UK does not have a wealth tax, meaning there is no annual tax on holdings.
Precious metal liquidity and spread
Liquidity indicates how easily and at what price a precious metal can be bought or sold. The spread is the difference between the purchase and sale price and is an important but often underestimated cost factor.
Gold is the most liquid precious metal worldwide. It can be traded 24 hours a day and has a very deep market with many buyers and sellers. As a result, gold spreads are usually relatively low. This makes gold ideally suited for investors who value flexibility and predictability when buying and selling.
The market for silver whether platinum is smaller and usually more sensitive to fluctuations in supply and demand. In addition, VAT plays a larger role in pricing. This translates into higher spreads compared to gold. Especially with physical delivery, VAT can significantly increase the spread.
For investors, this means that silver and platinum are usually a longer investment horizon required to offset these higher costs. If you do not take this into account enough, you may be confronted with a lower return in the event of interim sales, even if the price rises.
Precious metal volatility
Silver and platinum know historically stronger price fluctuations than gold. This can lead to higher returns in upward markets, but also to sharper declines in the short term.
This volatility requires discipline and one clear investment horizon.
Getting started with buying precious metals?
Do you want buy physical precious metal and are you looking for a party that thinks along, is transparent and works demonstrably reliably?
GoldRepublic is the first party in the Netherlands to have a AFM license for physical precious metals, has more than £1.3 billion in precious metals in storage and only works with independent safes. Through our platform, you can invest once or periodically in gold, silver or platinum. This is possible from as little as 1 gram or £50 in investment.
Through our savings plans you can buy precious metal fully automatically every week, every two weeks or every month at the current rate.
Conclusion
Would you like to buy precious metals? Read how selling gold, silver and platinum works and what you need to bear in mind.
Rika Zaat is host of MacroCheck at GoldRepublic, where she translates macro-economic topics into clear and accessible videos. She is also responsible for marketing, productions and events, including large live evenings with speakers such as Willem Middelkoop and Peter Schiff. Rika graduated cum laude from Nyenrode Business University with an MSc in Financial Management (GPA 8.2).
