I was quoted on the BBC News website this afternoon, urging investors to proceed with caution following the launch of a new website by the Royal Mint selling gold and silver coins:
“Gold can go up but it can plummet as well,” he said. “It is risky and there is no income attached.”
The Royal Mint is selling single gold Sovereigns for £197 and larger gold Britannias for £800. Their new website is also offering silver coins for £19.
These prices depend on the quantity you purchase, with lower prices for buying more coins.
This is an attempt by the Royal Mint to expand their bullion business by offering “relatively affordable” coins to the public.
Customers can choose to be sent their coin purchases by an insured postal service or, for an annual fee, have them stored at the Royal Mint’s Llantrisant site in South Wales, as long as you buy enough coins.
Why do I think investing in gold or silver bullion is a bad idea for investors?
Because gold is a non-income producing asset, buying it is better described as speculating rather than investing.
Its price is driven by demand from other speculators, often buying it as a ‘safe haven’ during times of irrational fear, when other mainstream investment assets are turbulent or there are bad economic times ahead.
This makes the gold price rather volatile.
Compared to three years ago, the gold price is around £400 lower today, despite concerns about the geo-political situation in Ukraine, the rise of Islamic extremists in Iraq and the Levant, and continued sovereign debt problems in Europe.
In many cases, investors will already have an indirect exposure to gold and other precious metals through their equity investments.
Taking the FTSE 100 index of leading UK company shares for example, around one-third of the index by market capitalisation is represented by mining and commodity companies.
When you buy gold bullion directly, you are possibly over allocating to this alternative asset class, magnifying the risks of such exposure.
If you’re an avid coin collector or simply want something you can trade for guns, food and fuel in the event of TEOTWAWKI, a modest collection of gold and silver coins could be just the thing.
If you’re looking for a solid long-term investment, it’s probably best to keep on looking.
