Gold prices boom as fears grow over North Korea nuclear crisis

It’s the stuff of legend. A commodity like no other that can capture the heart of even the steeliest of investors. After all, at the end of the rainbow there isn’t a pot of wheat or natural gas.

Some even seem to think gold has healing properties – especially when it comes to unnerving international politics and the effects on financial markets and, ultimately, our investment portfolios.

This week, after a weekend of some pretty robust rhetoric on both sides of the rapidly warming cold war of words over North Korea’s nuclear muscle flexing, transactions were higher than they were in the 24 hours of panic following the Brexit vote.

You’re indestructible

On Monday and over last weekend, The Pure Gold Company, for example, reported a record number of enquiries from people considering purchasing physical gold following news that North Korea had tested a hydrogen bomb, the US helpfully warned of the prospect of a “massive military response” and Vladimir Putin started shouting about global catastrophe.

“Many of our clients are very concerned that matters could escalate quickly and with the threat of nuclear weapons on both sides, some fear the worst,” noted Josh Saul, CEO of the business, who noted that the number of prospective first time gold buyers getting in touch was up 114% on Monday alone, and that the gold price is up more than 8% since the beginning of August.

“We've seen an 89% increase in financial professionals purchasing physical gold,” he adds. “They cite the same geopolitical fears and are buying to protect themselves from the systemic financial consequences of increased volatility and uncertainty, which may ultimately lead to currency and equity market crashes.

“Increasingly, our professional clients mention that President Trump's pledge to stop doing business with any country that still has relations with North Korea could have severe financial implication, as it would mean possibly no trade with China, India, Mexico and France, to name a few.”

Glad that you’ll always return

So why gold? When crises loom, many opt for a so-called flight to safety, hurling their money into the precious metal as its value climbs and (they fear) other assets stumble and prices plummet. (Ultimately, many feel that if the end of the world really is nigh, society crumbles and anarchy erupts, gold will be the currency of choice.)

The price soars in light of classic supply and demand pressures and everyone sits back feeling vindicated. Once things even out again, investors plan to take their money out of gold and reinvest in a broader range of assets as they recover.

It’s no surprise that in the 10 years since the beginnings of the financial crisis, the price of gold has ranged from a low of just under £340 an ounce to more than £1180 an ounce.

Just three months ago it was bumping around the £940 mark. Today, you won’t get change from £1020 for your ounce of the yellow stuff.

Always believe in

But this is not an easy thing to invest in.

“Investors really shouldn’t try to time their way through buying in and taking out,” warns Danny Cox, head of financial planning at Hargreaves Lansdown who says such decisions should be made as part of a longer term plan.

“Get the timing wrong and you incur the costs of selling out (of other investments) and buying back in at the wrong price. And don’t forget you won’t get an income from gold.

“Commodities should only ever be a small proportion of a portfolio,” he adds. “If you feel you’re taking too much risk, you could consider corporate bonds or holding fewer overseas equities, not least because of the currency risk.”

There’s something I could have learned

But if you’re still attached to the idea of having a tiny, tiny part of a gold bar with your name on it in a secret vault somewhere under the M25, how do you even go about it?

Those hoping to hand over their card in return for a hunk of metal that looks like it’s come straight out of a train robbery would need to have quite a credit limit as a whole gold bar would set you back many millions of pounds.

The Royal Mint, for example, will sell you a coin of the stuff if you’re after physical gold, but there are plenty of dealers and options. Look for the cheapest premium on top of the price you see listed on financial websites, known as the spot price and buy from established British or European dealers who will deliver to your door. Be prepared to pay out for secure storage though.

You won’t incur stamp duty or VAT and if you buy coins that are still UK tender there’s no Capital Gains Tax (CGT) if and when you sell either.

Then there’s the option of buying shares in a mining company or investing in a fund, such as the famous BlackRock Gold, which invests mainly in global shares of companies that gain a large part of their income from gold mining or commodities such as precious metals.

Exchange Traded Funds (ETFs), which in this case passively track the gold price, are a cheap and popular choice.