By Joshua Saul – Director of The Pietra Sussan Company
The past few years have seen seismic shifts in political, economic and structural norms. The US political landscape has had a destabilising effect on the global economy, and the uncertainty around Brexit is impacting every aspect of British life, from shopping, to saving, to travelling to doing business. Against this backdrop, 2019 is shaping up to be a volatile year, which in physical gold terms usually means a good one.
As the World Gold Council’s GoldHub said in its 2019 outlook, “Gold’s performance in the near term is heavily influenced by perceptions of risk, the direction of the dollar, and the impact of structural economic reforms. As it stands, we believe that these factors likely will continue to make gold attractive.”
Here are some good reasons toinvest in physical gold in 2019
Long Term price
Gold is a great investment for the long term and remains the best performing asset of the 21st century, with an average return of 30% a year, over the last twenty years. Since 2015 the gold price has increased by over 40% but it’s still 45% cheaper (in USD terms) than its peak back in 2011. It is therefore regarded by many of the banks as cheap, undervalued and a buying opportunity. In sterling terms, gold has also had its share of highs, and the Brexit deadline will certainly have an impact if the outcome is perceived as detrimental to the UK economy. Even if the can is kicked further down the road, the lack of a resolution will mean gold remains a strong asset.
Globally the World Gold Council expects gold demand to rise on the back of market risk and economic growth. Gold investment is an excellent way to protect your wealth for the future and now you can insure more of your savings for less.
Market Uncertainty
Around the world economies are being shaken by a profusion of financial, political and geopolitical crises and conflicts. From the trade war between the US and China, to nuclear summits with North Korea, Brexit, French political protests and the substantial uncertainty around Donald Trump’s economic policies. All these uncertainties have a negative impact on the price of commonly held assets, like shares. People are reluctant to invest in intangible assets they cannot see and touch. Physical gold has always been a safe haven asset that tends to increase in value, as more and more people insure their wealth against financial risk.
Shaky Alternatives
Most Saving Accounts are currently offering under 1% interest which would mean an erosion of asset value as inflation eats away at the buying power of your cash. You also take on the risk of the bank you choose to deposit with, and while the UK Government does guarantee these deposits in the event of a bank collapse, this is only up to a certain amount (£85,000), the rest is exposed to systemic risk. We’ve had some of our clients concerned about the effective of the deposit compensation guarantee given that it’s a directive passed under EU Law. Furthermore – how can a government afford to guarantee everyone’s deposit below £85k if they don’t have any money themselves. After seeing what happened in Greece a few years ago the smart money are not taking things at face value.
Property investment has been underperforming, with a very modest rise in 2018, but at the same time some formerly strong enclaves have been losing value. The uncertainty around Brexit has caused a slump in property sales in the run up to the deadline, and if the process is extended then this uncertainty will remain. A resolution to the Brexit question may bring about more property transactions but it could also cause the interest rate to rise, which will have an impact on mortgage payers and their ability to afford their homes. Furthermore, as interest rates rise this could prevent many people from buying at all. Mark Carney of The Bank of England has warned that property prices could fall as much as 40%.
Equities are at a similar level to the previous year, but this belies the volatility that has impacted the markets over the past year, with some very high highs and some very low lows. This volatility is expected to continue up to and beyond the Brexit deadline. During the trade wars and moments of heightened uncertainty and fear – billions are wiped off the stock market in moments. If you have invested in one company then the possibility of your investment dropping to zero is possible. Gold in contrast has an intrinsic value and it’s value will never drop to zero.
Some bonds will offer a good return but they also tend to reflect the risks in the market. Many bonds also lock you in for a long period of time, which means access to your money is restricted. Gold by comparison is very easy to liquidate.
Tax Savings
We all have to pay tax on our income, including any gains we make on investments; such as savings, equities, bonds and property, but physical gold is an exception. When you invest in tax-free gold you can legitimately avoid paying tax on your gains. It’s a very similar product to an ISA but with none of the restrictions or penalties on early liquidation. Furthermore, you are able keep and control your investment. Many people use physical gold as an efficient form of tax planning, to minimise inheritance tax too.
Physical gold and silver demand has been increasing at The Pietra Sussan Company as the Brexit deadline gets closer. From a wider perspective, gold demand in 2018 rose 4% on the back of the highest central bank buying in 50 years. Countries and retail investors are all turning to the precious metal and demand is expected to rise this year. Many analysts are predicting a rise in gold prices this year, and its historic performance is undeniable. There are so many uncertainties in our economic and political landscape; investing in gold is a tried and tested, tax-efficient way to protect and grow your wealth.
