How to Invest in Gold: Is It a Good Investment?

Reviewed by Ed WilkinsonLast updated: November 6, 2025 8:29 am

Image credit: merwak. raw @Pexels

In this article:

Understanding the Appeal of Gold Investments
Factors Influencing Gold Prices
Gold Pricing Mechanism
The Pros and Cons of Investing in Gold
Tax Implications and Gold Investment Methods
Our How to Invest Series
A Financial Adviser Can Help

Understanding the Appeal of Gold Investments

Gold’s reputation as a stable asset during economic volatility has profound roots in history. Often perceived as a reliable store of value, it has been a preferred choice among investors who aim to mitigate risks in their portfolios. Its intrinsic value is not tied directly to the performance of a specific economy, which enhances its appeal during global uncertainties or when currency values are unstable.

In recent years, the investment landscape for gold has evolved with an increase in accessibility and various investment channels. Notably, the value of gold has shown resilience and an upward trend, especially noticeable during periods of low interest rates.

Historical Performance and Current Trends

Looking at historical data, gold has maintained its value over the long term, with significant price increases observed during economic downturns. For example, during the financial crisis of 2008, gold prices rose by approximately 25%¹. As of the first quarter of 2025, gold prices have again seen an uptick² in response to renewed market uncertainties and inflation concerns, reaffirming its role as a ‘crisis commodity’.

Additionally, the demand for physical gold, including bars and coins, has grown substantially. The World Gold Council³ reports that the demand in the UK alone increased, influenced by both retail and institutional investors.

Enhanced Accessibility through Digital Platforms

The modernisation of gold investing through digital platforms has also contributed to its increased popularity. Platforms such as Digigold not only offer a convenient way to invest in gold but also provide security and transparency that were previously challenging with physical transactions. These platforms allow investors to buy, sell, and manage their gold investments online, providing flexibility and immediate access to the global gold markets.

The combination of historical reliability and modern investment innovations continue to make gold a compelling choice for those looking to diversify their investment portfolios and protect against economic instability.

Our expert says...

“Gold historically serves as a financial safe haven, especially during times of economic stress and high inflation. Its ability to act as a hedge against inflation and currency devaluation continues to attract both new and seasoned investors, reinforcing its status as a cornerstone of diversified investment strategies.”

Factors Influencing Gold Prices

Several factors can influence the market price of gold. Typically, gold prices increase during periods of market uncertainty or economic downturns, while they tend to decrease when the market shows signs of strength. Specific factors that can drive gold prices up include:

Increased consumption demand, such as for jewellery, particularly in major markets like India and China, where gold is deeply ingrained in cultural traditions.
Low interest rates, which often negatively correlate with gold prices. With central banks maintaining rates at near-historic lows, the opportunity cost of holding gold decreases, making it more attractive.
A weakening US dollar, which increases gold affordability globally, boosting demand. For instance, a significant drop in the dollar’s value can lead to higher gold prices as it becomes cheaper for investors holding other currencies.
Limited supply due to reduced mining or recycling activities. Environmental regulations and geopolitical tensions can exacerbate these supply issues.
Geopolitical instability, which drives investors towards safer assets. Recent tensions in the Middle East and Eastern Europe have particularly highlighted this trend.
Positive natural events in gold-consuming regions, like a robust monsoon season boosting local economies and demand for gold. A good agricultural yield increases disposable income among rural populations, leading to higher gold purchases.

Additionally, central bank activities also play a crucial role in influencing gold prices. When central banks increase their gold reserves as a hedge against inflation or currency devaluation, this demand can drive prices up.

Conversely, any reversal in these factors typically leads to a decrease in gold prices, though the market’s complexity means these trends are not always linear or predictable. For instance, an unexpected strengthening of the US dollar or a sudden increase in global interest rates could lead to lower gold prices. Moreover, advancements in mining technology or new gold finds could temporarily boost supply, impacting prices.

Key Economic Indicators

Investors also monitor key economic indicators such as inflation rates, unemployment figures, and GDP growth, as these can affect gold prices. High inflation typically enhances gold’s appeal as a hedge, while stronger economic growth can dampen its attractiveness. In the current year, with global inflation rates fluctuating unpredictably, gold’s status as a safe-haven asset has become even more significant.

Understanding these dynamic factors can help investors make more informed decisions in the volatile market of gold trading.

Gold Pricing Mechanism

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The London Gold Fixing, established in 1919, continues to play a pivotal role in setting the gold price globally. This benchmark price is determined twice daily by a panel of major banks in London and is intended to reflect the consensus on the price at which gold is traded internationally. The fixing process provides a transparent price-setting mechanism that is critical for producers, consumers, and investors alike, helping them make informed decisions based on the most current gold price.

Understanding the Fixing Process

The price-fixing session occurs via a dedicated conference call, where the participating banks propose a price and then determine if there is a balance between buyers and sellers. If a balance isn’t found, the price is adjusted until equilibrium is achieved. This process ensures that the set price accurately mirrors the supply and demand dynamics at that particular moment.

Detailed Look at Allocated and Unallocated Gold

Choosing between allocated and unallocated gold investment options depends significantly on the investor’s risk tolerance and investment strategy. Allocated gold, while offering enhanced security through direct ownership of physical gold, involves additional considerations such as insurance and vault storage fees. These fees can vary depending on the amount of gold stored and the specific terms set by the vault facility.

On the other hand, unallocated gold accounts are often preferred by investors seeking liquidity and lower overhead costs. However, it’s crucial to note that unallocated gold exposes the investor to the credit risk of the bank holding the gold. In the event of a bank failure, unallocated gold investors are treated as general creditors, which can potentially lead to a partial or total loss of the invested capital.

Risks and Rewards of Different Gold Investments

The choice between allocated and unallocated gold should be made after carefully considering the associated risks and benefits. Allocated gold is advisable for those who are particularly risk-averse or for investments intended as a long-term store of value. In contrast, unallocated gold may be more suitable for active traders or those seeking short-term gains due to its cost efficiency and liquidity.

While the London Gold Fixing provides a reliable and globally recognised benchmark for pricing, investors must meticulously assess their options and the associated costs and risks when choosing between allocated and unallocated gold. This strategic decision should align with their overall investment goals and risk tolerance, ensuring a balanced approach to capitalising on the intrinsic and enduring value of gold.

The Pros and Cons of Investing in Gold

Gold investment carries both advantages and disadvantages. On the plus side, gold is resistant to inflation and maintains its value over time. It provides an economic “lifeboat” during severe market downturns and can be a practical portfolio diversifier. However, gold does not typically match the growth seen in equity markets. For instance, while gold prices have seen an upward trend, they still generally lag behind the returns provided by a balanced FTSE 100 share portfolio over similar periods.

In addition to its reputation as a hedge against inflation, gold is also seen as a safe haven in times of political instability. As geopolitical tensions persist in several regions around the world, investors have increasingly turned to gold to safeguard their wealth.

Investment Considerations

Liquidity: Gold is highly liquid compared to other physical assets like real estate. This liquidity makes it easier for investors to enter and exit positions as needed, providing flexibility in managing investment strategies.
Cost Implications: While gold itself does not incur management fees, the costs associated with storing and insuring physical gold can add up. Investors opting for gold ETFs or digital gold platforms might face different costs, such as fund management fees or platform charges.
Market Sentiment: Gold prices are significantly influenced by market sentiment and investor behaviour. In periods of market optimism, gold may underperform as investors seek higher returns from equities and other risk assets.

Ultimately, the decision to invest in gold should be based on a comprehensive assessment of one’s investment goals, risk tolerance, and the overall economic environment. While gold can provide stability and protection against inflation, it should ideally be part of a diversified investment portfolio to mitigate risks associated with its lower growth potential compared to other asset classes.

Top Tip

When considering investing in gold, it’s crucial to evaluate your financial goals and risk appetite. Gold can serve as a stabiliser and protect against inflation, but remember it often provides lower returns compared to stocks. Diversify your investment portfolio to balance potential risks and rewards. Stay informed about current economic conditions and geopolitical events, as these can significantly impact gold prices. Additionally, factor in the costs of purchasing and holding gold, such as storage and insurance, or fees associated with gold investment products like ETFs.

Tax Implications and Gold Investment Methods

In the UK, gold bullion remains exempt from VAT, offering a significant tax advantage compared to other precious metals such as silver or platinum. However, it’s important to note that profits from gold investments are subject to Capital Gains Tax (CGT) if they exceed the annual exemption limit. For the 2025/26 tax year, this limit is set at £3,000. Investors should also consider the potential impact of inflation on their investment returns, which can affect the real value of their gains in terms of purchasing power.

Investors have a variety of methods available for investing in gold, each with its own set of benefits and considerations:

Physical gold: This includes the direct purchase of bullion, coins, or jewellery. While this method allows investors to physically hold their investment, it also requires considerations for secure storage and insurance, which can incur additional costs.
The Royal Mint: Known for its secure and reliable services, The Royal Mint offers gold purchases with options for storage in their Vault. This service provides an added layer of security and convenience, albeit with a fee for vault storage.
Exchange-traded commodities (ETCs): These financial instruments track the price of gold and are traded on stock exchanges similar to shares. ETCs provide liquidity and ease of trading but may involve brokerage fees.
Gold mining shares: By investing in companies that mine, refine, and distribute gold, investors can potentially benefit from the operational profits of these companies. However, this method ties the investment’s performance to the success of individual companies and market factors affecting the mining industry.
Self-invested personal pension (SIPP): Including gold in a SIPP can provide a tax-efficient way to invest in this metal. The investment is typically made through gold-related financial instruments approved for SIPP purposes.
Digigold: This digital platform facilitates the buying and selling of gold and other metals, backed by real physical bars. Digigold offers the convenience of online transactions with the assurance of physical backing, although platform fees may apply.

Additional Investment Considerations

When choosing a gold investment method, it’s essential to consider the associated fees, liquidity, and the level of direct exposure to gold prices each option offers. For instance, physical gold provides direct exposure but requires dealing with physical storage and security. In contrast, ETCs and gold mining shares offer indirect exposure with different risk profiles and cost structures.

Investing in gold through a SIPP may have distinct advantages, especially in terms of tax efficiency. However, investors should ensure that their investment choices comply with the regulations governing SIPPs and consider the impact of these investments on their overall retirement planning strategy.

Ultimately, selecting the right gold investment method should align with the investor’s financial goals, risk tolerance, and investment horizon. Adequate research and possibly consulting with a financial adviser can help in making informed decisions tailored to personal financial needs.

Our How to Invest Series

We’ve prepared a series of blogs to help you understand how to invest in various sectors and whether these investments are a good idea. You can learn more below:

A Financial Adviser Can Help

For those new to the precious metals market or looking to ensure a strategic investment, consulting with a financial adviser might be beneficial. An adviser can provide tailored guidance, help navigate the complexities of the gold market, and ensure that your investments align with your financial goals and risk tolerance. They can also explore ethical investment opportunities and assist in managing your portfolio’s diversity and security.

FinancialAdvisers.co.uk can connect you with a FCA Approved Financial Adviser in your area, helping you make informed decisions on investments like gold and other precious metals.

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