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How to hold gold in ISA

webbm00
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How to hold gold in ISA

#314932

Postby webbm00 » June 3rd, 2020, 10:51 pm

Can someone tell me the best way to hold some gold in my portfolio? So far I've found the following

IGLN - iShares Physical Gold ETC - Priced in dollars
SGLD - Invesco Physical Gold ETC - Priced in dollars
PHAU - WisdomTree Physical Gold - Priced in dollars
GBSP- WisdomTree Physical Gold - GBP Daily Hedged - Priced in Pounds

Do all of these track the physical gold price?
What are the implications of holding dollar priced investments in an ISA?
What are the implications of hedging to GBP?

Urbandreamer
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Re: How to hold gold in ISA

#314976

Postby Urbandreamer » June 4th, 2020, 7:27 am

webbm00 wrote:....
PHAU - WisdomTree Physical Gold - Priced in dollars
GBSP- WisdomTree Physical Gold - GBP Daily Hedged - Priced in Pounds

Do all of these track the physical gold price?
What are the implications of holding dollar priced investments in an ISA?
What are the implications of hedging to GBP?


You have answered your first question yourself. PHYSICAL gold means that they hold physical gold. They will have costs in doing so and other costs so it won't be quite the same as gold in the sock draw, but in theory it's fairly close in financial terms. So yes they "track" the gold price by actually having the stuff. You can also get synthetic gold ETC/ETF's that don't actually hold the stuff but attempt to track it using derivatives.

The implication of holding dollar priced, shall we say treasury bonds, is currency movement. The implication for these ETC/ETF's is any costs that your platform charge for dollar transactions, because the underlying asset has a value that is not based upon the currency it was traded in. When I held such a thing I didn't notice those costs.

Hedging is a constant running cost, I would avoid it unless you fear that there may come a time when £'s and $'s can not be changed. I suspect that GBSP is offered because some people want it, rather than for any merit.

I did a quick search after writing and found this
https://citywire.co.uk/funds-insider/ne ... uy/a449943

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Re: How to hold gold in ISA

#314978

Postby GrahamPlatt » June 4th, 2020, 7:31 am

Novice question, but if you hold gold “in the sock drawer”, does this attract CGT (& conversely, can losses be offset)? Because if not, there’s not a lot of point to putting it in an ISA.

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Re: How to hold gold in ISA

#315055

Postby Laughton » June 4th, 2020, 10:19 am

arguably, holding a large amount of gold in an ISA or SIPP is safer than tucking it into your sock drawer.

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Re: How to hold gold in ISA

#315064

Postby fca2019 » June 4th, 2020, 10:40 am

I personally would caution against holding gold as it's return is uncertain and could go down from this point. Although gold has done well in the last 20 years. The previous 20 years it was flat. Whereas stocks index especially with dividends reinvested always go up over the long term because their price is based on the profitability of the company and perception of future growth, which as productive assets will always grow over time.

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Re: How to hold gold in ISA

#315092

Postby PinkDalek » June 4th, 2020, 11:32 am

GrahamPlatt wrote:Novice question, but if you hold gold “in the sock drawer”, does this attract CGT ...


See, for example, https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg78305.

Much more available via Google on the subject.

Because if not, there’s not a lot of point to putting it in an ISA.


I don't think anyone has suggested holding physical gold in such a way and I don't believe it is possible to hold in an ISA. Thus the mention of ETFs as a route.

Someone mentioned holding physical gold in a SIPP. I haven't verified but the indications are it may be possible.

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Re: How to hold gold in ISA

#315102

Postby Laughton » June 4th, 2020, 11:56 am

"Someone mentioned holding physical gold in a SIPP. I haven't verified but the indications are it may be possible."

It's definitely possible in a SSAS so can't see why it wouldn't be OK in a SIPP (although I appreciate that the rules are slightly different).

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Re: How to hold gold in ISA

#315119

Postby PinkDalek » June 4th, 2020, 12:29 pm

Laughton wrote:It's definitely possible in a SSAS so can't see why it wouldn't be OK in a SIPP (although I appreciate that the rules are slightly different).


Yes, apologies, I meant indications outwith TLF, not merely you.

You also mentioned holding physical gold in an ISA, albeit as a sock joke. Surely not possible.

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Re: How to hold gold in ISA

#315212

Postby Laughton » June 4th, 2020, 3:02 pm

Ah, sorry. By "physical gold" I was referring back to the OP and physical gold ETC/ETF/ETPs

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Re: How to hold gold in ISA

#315229

Postby 1nvest » June 4th, 2020, 3:44 pm

Legal tender gold coins, most Sovereign's/Britannia's, are CGT exempt, but spreads can be wide. Hold a gold ETF fund and spreads tend to be much lower, but are liable to CGT. However you can tax harvest between them, as you might between stocks held inside (tax exempt) and outside (taxable). Typically where you look to expand taxable holdings when prices are up (reduce non taxable) and vice-versa. Such tax harvesting can add "tax loss" amount such that you have more tax exempt capital gains tax negation if/when assets are being sold.
I personally would caution against holding gold as it's return is uncertain and could go down from this point. Although gold has done well in the last 20 years. The previous 20 years it was flat. Whereas stocks index especially with dividends reinvested always go up over the long term because their price is based on the profitability of the company and perception of future growth, which as productive assets will always grow over time.

Yes 1980's/1990's saw gold prices decline, but 50/50 stock/gold yearly rebalanced would have seen number of ounces of gold being held expand massively, of the order 6 to 8 fold. The benefit of having accumulated more ounces pays back handsomely at other times, since 2000 for instance 4%/year inflation adjusted drawn from all-stock total returns has seen 70% of the inflation adjusted portfolio value being lost, whilst for gold the value has doubled or more (was triple in 2011). https://tinyurl.com/yddg6enb Pretty much the same as occurred during the 1970's.

Buy a house and leave it empty, or buy a farm and leave it idle, and you forego the (imputed or actual) rent benefit, or dividends that a worked farm might provide. A lump of gold held as a doorstop isn't productive use of that asset, its benefits predominately arise out of trading it, which can be as simple as via yearly rebalancing back to target % weightings. When so, its dividend/benefit can be substantial. Most however just look at is from a lump of metal doorstop (in isolation) asset - much the same as they might consider a empty house or idle farm.

Scroll down this link https://tinyurl.com/ydhhzq32 and click the inflation adjusted tickbox in the Portoflio Growth chart and that will reveal how gold can yield dividends, albeit that they are not directly paid/received dividends. Hover your mouse over the Jul 1982 region in that chart and it will show how 10,000 of 1972 start date all-stock value was down to 3800 value in inflation adjusted terms a little over a decade later than that 1972 start date when drawing a 4% inflation adjusted income. And that data is total returns, so similar in some respects to having started off with a 4% dividend having been drawn.

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Re: How to hold gold in ISA

#315346

Postby webbm00 » June 4th, 2020, 9:31 pm

Urbandreamer wrote:
webbm00 wrote:....
PHAU - WisdomTree Physical Gold - Priced in dollars
GBSP- WisdomTree Physical Gold - GBP Daily Hedged - Priced in Pounds

Do all of these track the physical gold price?
What are the implications of holding dollar priced investments in an ISA?
What are the implications of hedging to GBP?


You have answered your first question yourself. PHYSICAL gold means that they hold physical gold. They will have costs in doing so and other costs so it won't be quite the same as gold in the sock draw, but in theory it's fairly close in financial terms. So yes they "track" the gold price by actually having the stuff. You can also get synthetic gold ETC/ETF's that don't actually hold the stuff but attempt to track it using derivatives.

The implication of holding dollar priced, shall we say treasury bonds, is currency movement. The implication for these ETC/ETF's is any costs that your platform charge for dollar transactions, because the underlying asset has a value that is not based upon the currency it was traded in. When I held such a thing I didn't notice those costs.

Hedging is a constant running cost, I would avoid it unless you fear that there may come a time when £'s and $'s can not be changed. I suspect that GBSP is offered because some people want it, rather than for any merit.

I did a quick search after writing and found this
https://citywire.co.uk/funds-insider/ne ... uy/a449943



So if I understand it correctly for all these ETCs
IGLN and SGLD (USD) - Replicates $ gold price
PHAU (USD) - Is backed by bullion to replicate $ gold price
SGLN (GBP) - Replicates $ gold price but is then converted to GPB at iShares exchange rate. Not sure how much this effects the returns as the currency movement could swamp the gold price change?
GBSP (GBP) - is backed by bullion and is hedged daily to the GBP. I assume the aim of this is to replicated the price movement of the $ gold price in GBP

It looks like from a comparison chart that my assumptions above are correct except that the hedged price drifts lower over time. Is this the effect of charges built into the conversion rate reducing the correlation?

Image

As you said it comes down to IGLN and EQis 0.95% international trade fee plus exchange rate or SGLN and iShares exchange rate. Not sure how to evaluate which is best?

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Re: How to hold gold in ISA

#315347

Postby webbm00 » June 4th, 2020, 9:42 pm

1nvest wrote:Legal tender gold coins, most Sovereign's/Britannia's, are CGT exempt, but spreads can be wide. Hold a gold ETF fund and spreads tend to be much lower, but are liable to CGT. However you can tax harvest between them, as you might between stocks held inside (tax exempt) and outside (taxable). Typically where you look to expand taxable holdings when prices are up (reduce non taxable) and vice-versa. Such tax harvesting can add "tax loss" amount such that you have more tax exempt capital gains tax negation if/when assets are being sold.
I personally would caution against holding gold as it's return is uncertain and could go down from this point. Although gold has done well in the last 20 years. The previous 20 years it was flat. Whereas stocks index especially with dividends reinvested always go up over the long term because their price is based on the profitability of the company and perception of future growth, which as productive assets will always grow over time.

Yes 1980's/1990's saw gold prices decline, but 50/50 stock/gold yearly rebalanced would have seen number of ounces of gold being held expand massively, of the order 6 to 8 fold. The benefit of having accumulated more ounces pays back handsomely at other times, since 2000 for instance 4%/year inflation adjusted drawn from all-stock total returns has seen 70% of the inflation adjusted portfolio value being lost, whilst for gold the value has doubled or more (was triple in 2011). https://tinyurl.com/yddg6enb Pretty much the same as occurred during the 1970's.

Buy a house and leave it empty, or buy a farm and leave it idle, and you forego the (imputed or actual) rent benefit, or dividends that a worked farm might provide. A lump of gold held as a doorstop isn't productive use of that asset, its benefits predominately arise out of trading it, which can be as simple as via yearly rebalancing back to target % weightings. When so, its dividend/benefit can be substantial. Most however just look at is from a lump of metal doorstop (in isolation) asset - much the same as they might consider a empty house or idle farm.

Scroll down this link https://tinyurl.com/ydhhzq32 and click the inflation adjusted tickbox in the Portoflio Growth chart and that will reveal how gold can yield dividends, albeit that they are not directly paid/received dividends. Hover your mouse over the Jul 1982 region in that chart and it will show how 10,000 of 1972 start date all-stock value was down to 3800 value in inflation adjusted terms a little over a decade later than that 1972 start date when drawing a 4% inflation adjusted income. And that data is total returns, so similar in some respects to having started off with a 4% dividend having been drawn.


Thanks 1nvest your post on 50/50 gold/stocks got me thinking a bit more about asset allocation as I'm about 10 years from retirement and probably need to de-risk my 100% stock portfolio a bit. What I'm not sure of is the best way to transition from 100% stocks to 50% gold? I could just use dividend payment to buy gold through an ETC but that would just bring the % up slowly and I'm not sure if that would kill the rebalancing strategy

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Re: How to hold gold in ISA

#315394

Postby 1nvest » June 5th, 2020, 1:22 am

In your case I wouldn't go for 50/50, but look to 67/33 stock/gold instead.

US stocks have done great over the last decade+ haven't they? Better than the UK! Well here's a look at how 100% US stock with a 4% SWR (withdrawal rate that is increased by inflation) has panned out since 2000. Yes US data, so not a real reflection for UK investors, but close enough.

https://tinyurl.com/y9eg9c5v

Image

100K Jan 2000 investment, down to 29K more recently in inflation adjusted terms! Ouch!

Whilst gold also with a 4% SWR has worked great. A similar pattern to the 1970's. But where gold was a drag factor during the 1980's/90's. A reasonable overall choice is 67/33 IMO, better smooths things over both periods of economic/monetary contraction and expansion.

If you buy stock and gold at around the same time in equal measure then that's somewhat like a barbell of two extremes that converge to a central currency unhedged global bond type holding, similar to how a short and long dated (20 year) gilt barbell converges to being a 10 year bond bullet.

As you're already holding stock however, buying in equal measure until gold is up to 33% isn't really a viable choice. Gold with rebalancing will yield dividends over time (gold just bought and locked away doesn't yield dividends, is more like buying a farm and leaving it idle). The cycles are however long, perhaps 2 decades or more. Whilst the pattern of post 2000 and the 1970's for stock and gold are similar a major difference is that the 1970's had high inflation/interest rates (low prices), that resulted in the 1980's/1990's greatest bull run ever (maybe). This time around there's no 'compensation' for bad outcomes (as suggested above) seemingly likely over the shorter term (decade or so). I suspect there will be cycles - sideways zigzagging between stock and gold doing OK over coming years, that will provide opportunities to reduce stock (or gold) and add to the other. So perhaps just revise your target asset allocation yearly in a progressive manner, whilst rebalancing to those weightings once/year. 93/7 stock/gold year 1, 86/14 year 2, 79/21 year 3, 72/28 year 4, 66/33 year 5 ... or whatever. Which is cost averaging down stock, time cost averaging into gold over range of years without the discomfort of a single big change at just a single point in time.

A difficulty will be persisting with the asset allocation, as many see the likes of the 1980's/90's where you may just repeatedly be reducing some stock to add to gold that is declining in price and capitulate. But if you do get through that then when gold does kick you'll be thankful for its presence within your portfolio. Part saviour is that even in relatively bad decades for gold, it does still shine periodically. Some years will see gold up much more than stocks, in a unpredictable manner.

I've posted this before elsewhere - whilst it shows US stock and gold, in £ and UK inflation adjusted terms, its not that dissimilar to UK stocks and gold.

Image

Rightmost is the average of each decades yearly best and worst asset values, and most right is the average of those two values - i.e. that is a indicator of what the combined 50/50 of the two averaged in real (after inflation) terms.

The bottom chart provides a visual indicator of how ounces of gold being held (and stock shares) expanded and contracted over time from trading (yearly rebalancing) the two. The purple right hand scaled line shows the combined outcome. Look at 2008/9 for example, when stock heavy portfolios saw large declines, and you sailed through those years. Similar for CV-19, a look at the portfolio value would see nothing notable. Generally you either "get-it" or don't, and many don't (and often will vile those that do). One of the rules of holding gold is to say that you don't. Bear in mind that even the most secure home safe can be opened with a pair of pliers.

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Re: How to hold gold in ISA

#331873

Postby 1nvest » August 9th, 2020, 10:41 am

webbm00 wrote:GBSP (GBP) - is backed by bullion and is hedged daily to the GBP. I assume the aim of this is to replicated the price movement of the $ gold price in GBP

It looks like from a comparison chart that my assumptions above are correct except that the hedged price drifts lower over time. Is this the effect of charges built into the conversion rate reducing the correlation?

Image

GBSP hedges so that a UK investor gets the US gold movement reward. If day US$ priced gold moves from $1000 to $1300, perhaps in reflection of declines in US$ relative to other currencies, whilst perhaps the price of gold remains the same in £'s i.e. the US$ had relatively declined compared to the £, then holders of GBSP might see a 30% rise in the £ value of their GBSP holdings.

The hedging drifted lower in your image due to circumstances over that period, over another period it could swing the other way around.

Since the US decoupled entirely from a gold backed US$ in the 1970's the dollar has broadly relatively declined relative to gold. But not in a linear manner, has at times increased, but mostly it slid down over the 1970's, flat-lined over the 1980/90's, has slid down again since. I would see that slide/flat/slide as a trend that will sustain over time, when a currency is backed by nothing tangible then at times the legal counterfeiting of money will be exploited. Recently I produced the following of actuals (blue line) and projected the recent trend as a potential feel for how the price of gold might continue on upwards over the next year. More of a guess so don't take those figures too seriously.

Image

Some say that a 1 ounce gold coin would buy a Roman soldier a suit, as similarly a 1 ounce gold coin might buy a modern day man a suit, from that they deduce that gold just broadly paces inflation and often opt to not bother holding it, but instead sell gold into currency that they then invest in perhaps stocks and bonds and achieve perhaps a reasonable net of costs/taxes total return and pat themselves on the back at how great a investor they are - yet perhaps all they'd have achieved is to be able to buy back the same amount of gold weight they'd had they'd originally sold.

But its all very volatile. At times for instance its taken less than 2 ounces of gold to buy the Dow, at other times its taken over 40 ounces. As the gold/house price chart on this web link shows https://www.bullionbypost.co.uk/index/g ... ate-ratio/ at times its taken less than 100 ounces of gold to buy a house, at other times it taken over 600 ounces. Recently the UK average house price is around £300K, so with gold at £1500/ounce its around 200 ounces of gold to buy a house. Given the volatility however a simple way to become a good 'trader' is to 50/50 stock/gold and yearly rebalance, as that will trade the swings as they occur.

Personally I look to hold £'s (home value), primary reserve currency (US$'s invested in stocks) and gold (global currency, also a commodity). As such GBSP doesn't really have any appeal to me. It would be hedging something that I don't want to be hedged into another currency. Much of investing and diversification is to reduce any hit from being over-concentrated into any one single currency or asset. Currency diversification of £ (domestic currency)/$ primary reserve currency/gold global currency, across land, stocks, commodity asset diversification. Generational wealth tends to hold similar, but where stocks are replaced by art, so 100% tangible/physical (no counter party risks).

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Re: How to hold gold in ISA

#331896

Postby 1nvest » August 9th, 2020, 12:10 pm

Leveraged ETF's/products are often frowned upon. Personally I like and use them.

Consider a 2x stock ETF, what you buy of that the fund in effect borrows the same amount again in order to buy twice the amount of exposure. If you invest half the amount in that, deposit the other half in bonds, then that's comparable to the fund borrowing your bond amount to scale up exposure. Net outcome is that half in 2x, half in bonds will compare much the same to 100% 1x. Similar for 3x. A third in 3x, two-thirds in bonds compares to 100% 1x. A problem however is that leveraged holdings can deviate, what was originally half in 2x, half in bonds might drift to being 66/33 or 33/67. To mitigate that effect you have to rebalance a 2x around once/year back to 50/50 weightings, or for a 3x rebalance every 6 months back to 33/67 weightings.

Zvi Bodie takes that a step further and he buys into a 10x stock using 10%, holds bonds for the remainder 90%, and rebalances frequently (monthly). He gains that 10x exposure via LEAPS .. long dated Traded Options.

I quite like a third each in US stock, UK mid cap stock (which is small cap stock in US scale) and gold. Here's a US version that is somewhat like that where for the first portfolio its using a combination of 3x and 2x holdings for the stock and gold assets, and that is compared to the straight 1x version (second portfolio).

In the UK ... Wisdom Tree's 3x gold, 3x US stock and 2x FT250 can be used to similar effect. That does however leave 64% in 'cash'. Which could be UK 1 year gilts or cash deposit ...etc.

Yes the expense ratios for those are high, but when you hold just around a third in total in those, two thirds in cash, that scales those costs down by two-thirds. Similarly £/$ currency conversions that might otherwise cost perhaps 1.5% as I believe iWeb apply, are again proportioned down to just a third, a more acceptable 0.5% cost. And they are all SIPP and ISA'able.

I do get quizzed when trading those (automated online basic "quiz"), to ensure I'm a sophisticated investor, which is a pain, especially when you're already holding them and looking to reduce/sell. i.e. the brokers are distancing themselves from the risks. But as I buy/hold them and trade infrequently that's not a great issue for me. And of course you get bombarded with the likes of them only being suitable for short term positions/trading, not viable long term holdings etc. However I've held leveraged ETF's on a buy and hold basis longer term (multiple years dating back to a year or two after 2MCL became available back in 2013). Periodically I do get SMS/text messages indicating that a 10% move has occurred, often in the middle of the night, which again is a bit of a pain. But then after a purge for a few days or so things go quiet again.

Holding around two thirds in cash is handy for cash flows. Whilst that should be earning interest to offset the leveraged funds borrowings, at recent low yields it doesn't matter that much if you 'borrow' from that. You can do other tricks to keep cash unchanged, such as scaling more into 3x, less into 2x or the other way around, so that overall cash, that might be tied up into perhaps a 1 year fixed term bond, can be left as-is.

There are other tricks as well, such as using long and short positions in around equal weightings that has the effect of migrating money from one account into another. Add to a SIPP for instance and you're credited with 20%, but can't touch that money until later in life. With long/short neutral positions however and the money can be migrated from SIPP to ISA/trading.

Some physical gold is nice, and personally I prefer Britannias for their lower spread between spot and coin prices. The spreads do drift around so buying when perhaps 3% or less is OK IMO. Only buy from reputable suppliers. Hattongardenmetals/coininvest tend to have acceptable spreads, but again that drifts. But for selling its OK to offer on the likes of thesilverforum.com where others might offer above spot to purchase your coins.

http://goldprice.eu5.net/ provides a quick indicator of different recent spreads across different suppliers. Best to check during business hours as out of hours the spreads tend to go extreme. One supplier that has recently come onto my radar is https://www.gold.de/ but I have no experience with that outfit whatsoever. Their spreads however do seem very tight, around 2.5% between Britannia and spot when I looked last Tuesday afternoon when others were up at relatively high 4% type levels. So if you can buy for that and later another thesilverfourm member buys coins from you at perhaps spot+2% ... :)

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Re: How to hold gold in ISA

#331919

Postby 1nvest » August 9th, 2020, 12:47 pm

After pondering the portfolio growth chart in this link, click the 'Assets' tab that is a little over a third of the way down and over towards the right ... and the last chart in that shows the individual assets returns. If the 3x short SPXS was being held in SIPP !!!


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