Gold has been a store of value for thousands of years and still features in many modern portfolios. Central banks continue to hold significant reserves, and clients often ask about it during periods of uncertainty.
For advisers the question is rarely whether gold is interesting, but what role it can credibly play, how it should be held and how much is sensible. This guide covers each in turn.
Why Gold Appears in Client Portfolios
Gold pays no interest or dividends, so its case rests on other characteristics:
- Diversification: gold has historically shown low correlation with equities and bonds over long periods, so it can behave differently when other assets fall
- A potential inflation hedge: over the long term gold has tended to hold its purchasing power, although the relationship is inconsistent in the short term
- Safe-haven demand: interest often rises during geopolitical tension, financial stress or currency weakness
- No issuer credit risk: physical gold is not someone else’s liability
The Limitations
- No income: returns depend entirely on price movements
- Volatility: prices can fall sharply and stay low for years
- Currency effects: gold is priced in US dollars, so sterling-based clients carry exchange rate exposure
- Costs: storage, insurance, dealer spreads and fund charges all reduce returns
Ways to Gain Exposure
Each route carries different costs, risks and administrative demands, which matters for platform availability and reporting.
Physical Gold
Bars or coins can be held privately or in a professional vault. Ownership is direct, but storage and insurance must be arranged. Certain UK legal tender coins, such as Britannias and Sovereigns, are currently exempt from Capital Gains Tax, though advisers should confirm how the rules apply to each client.
Gold Exchange-Traded Products
Exchange-traded commodities and funds track the gold price and trade like shares. They are liquid and straightforward to administer, but check whether the product is backed by physical gold, how the metal is custodied and what charges apply.
Mining Shares and Funds
Mining companies offer indirect exposure. They can outperform gold in strong markets but add company-specific risks such as operating costs, management decisions and political risk.
Mining Bonds and Private Opportunities
Some structures give a fixed return linked to a mining project rather than direct exposure to the gold price. These carry project and issuer risk. See our article on whether mining bonds are a good investment.
How Much Is Appropriate?
There is no single answer. Where gold is used, it is usually a modest strategic allocation, often in the single digits as a percentage of the portfolio, rather than a core holding. The right level depends on the client’s objectives, time horizon, attitude to risk and the rest of the portfolio, and the rationale should be recorded in the suitability report.
Gold works best as a diversifier. Too much can drag on long-term returns because it produces no income, while a small allocation may help cushion difficult periods.
Conclusion
Gold can add diversification and a long-term store of value, but it is not an income source and its price can be volatile. The choice of vehicle and the size of the allocation matter as much as the decision to hold it.
For IFAs and wealth managers interested in gold opportunities for clients, visit our Gold page or speak to our team.
Professional audience only: This content is intended for IFAs, wealth managers and other professional intermediaries. Target Wealth Group is a B2B business and we do not deal with retail investors.
Risk warning: This article is for information only and does not constitute financial advice or an offer to invest. Many alternative investments are high risk and illiquid, are not covered by the Financial Services Compensation Scheme (FSCS), and you could lose some or all of the money you invest. Past performance is not a reliable indicator of future results. Please read our full risk warning and seek independent financial advice if you are unsure.
