Why invest in gold and commodities?
Guide Summary
- Gold is seen as a store of value, inflation hedge (safeguard against the erosion of purchasing power due to rising prices), and portfolio diversifier, especially in times of uncertainty.
- UK investors can access gold through physical assets, ETCs, ETFs, mining stocks, or digital vault accounts – each with pros and cons.
- Commodities, including metals, oil, and agriculture, can reduce overall portfolio risk as non-correlated assets.
Why do people invest in gold?
Gold has held its appeal for thousands of years — and for good reason. It’s often viewed as a safe haven1 (prices can fluctuate) investment that people turn to during periods of uncertainty. Here’s why it continues to attract attention from investors:
- Store of value: In times of economic crisis or market downturns, gold tends to retain its worth better than riskier assets.
- Hedge against inflation: When inflation rises and currency loses purchasing power, gold has historically maintained or increased its value – acting as a financial hedge.2
- Diversification: Gold doesn’t typically move in the same direction as stocks or bonds, making it a useful addition to a balanced portfolio.
How to invest in gold in the UK
There are several ways to gain exposure to gold, depending on your preferences, budget, and investment goals:
1. Physical gold
- Pros: Tangible, recognised globally, no counterparty risk (the chance that a party to a financial transaction, like a loan, investment, or trade, will fail to fulfill its obligations, potentially leading to losses).
- Cons: Needs safe storage, insurance, can be less liquid than other options.
2. Gold ETFs, ETCs and funds
- Pros: Simple, cost-effective, easy to buy/sell like stocks.
- Cons: Doesn’t give you access to physical gold. May involve price tracking errors or management fees.
3. Gold mining stocks
- Pros: Potential for higher returns if gold prices rise.
- Cons: Company-specific and operational risks.
4. Gold savings accounts or digital vaults
- Pros: Fractional ownership (an option to share between a number of investors), digital ease, lower entry point.
- Cons: May have account or withdrawal fees, and depends on provider trustworthiness.
Risks and disadvantages of investing in gold
Like any asset, gold has its downsides. It’s important to understand these before diving in:
- No income: Gold doesn’t pay dividends or interest – returns are confined to price growth (may be subject to Capital Gains tax).
- Price volatility: Despite its ‘safe haven’ label, gold can still fluctuate in value based on market sentiment, interest rates, or geopolitical news.
- Storage and insurance costs: Holding physical gold securely often comes with extra fees and responsibilities.
Historical performance of gold
Gold has historically provided moderate long-term returns, though it can go through extended periods of underperformance. Over the past 20 years, gold has returned an average of ~8% per year.1
It has historically performed best during:
- Inflationary periods
- Currency devaluations
- Market shocks or crises
Investing in other precious metals and commodities
Gold isn’t the only option when it comes to tangible assets. Other precious and industrial commodities can also play a role in your strategy.
Precious metals:
- Silver – More volatile than gold, with both monetary and industrial demand.
- Platinum & palladium – Used in manufacturing and clean energy tech, offering unique demand drivers.
Broader commodities:
- Oil & natural gas – Linked to global energy prices. Prone to sharp swings but still essential to global economies.
- Agricultural commodities – Wheat, coffee, sugar, and livestock can offer growth tied to global supply/demand shifts.
These can help hedge against inflation or add exposure to global growth – but also carry distinct risks based on weather, politics, or regulation.
How to invest in commodities in the UK
You don’t need to stockpile barrels of oil or coffee beans to invest in commodities. Here are some beginner-friendly ways to get started:
- Commodity ETFs – Track the price of specific goods or baskets of commodities (e.g., gold, oil, agriculture).
- Futures contracts – More advanced and high risk – these involve speculating on the future price of a commodity.
- Commodity-producing companies – Invest in miners, energy producers, or agricultural businesses.
- Physical metals – As mentioned, physical gold or silver remains popular for tangibility and trust.
Gold and commodities in a diversified portfolio
Commodities behave differently than traditional assets like stocks and bonds – so they can add balance to your portfolio.
They’re often non-correlated, meaning they may rise when stocks fall (especially during inflation, currency shocks, or geopolitical events).
Investing in gold and commodities summary
Gold and other commodities can be powerful tools for diversification, especially in uncertain economic times. They don’t generate income like stocks or bonds, but they can help protect against inflation, currency weakness, or financial market shocks.
The right amount for your portfolio depends on your goals, risk tolerance, and time horizon. However, even a small allocation can go a long way in building resilience.
In the next guide of the series we take a closer look at cryptocurrencies and how they work.
FAQs
How can a beginner invest in gold?
ETFs and other digital options can be great starting points due to their accessibility, low cost, and simplicity.
How do you invest in gold in the UK?
Options include buying physical gold (bars, coins), investing via ETFs or funds, purchasing mining stocks, or using digital vault platforms.
Is gold the best investment?
Gold is a defensive asset so it can protect against market shocks. Best used as part of a wider, diversified portfolio.
What’s the difference between investing in gold and silver?
Gold is more stable and seen as a store of value. Silver has greater industrial use, tends to be more volatile, but can offer higher returns under certain conditions.
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than your original investment. Chip does not offer financial advice and this should not be considered as a personal recommendation. Diversifying means spreading your investments across different sectors, countries and asset classes.
Direct investment into gold and commodities is not available via the Chip platform. Chip offers gold and silver ETCs and investment funds that invest in different assets as a collective investment.
