Gold as an Investment for International Investors

Gold in an International Investment Portfolio

Gold occupies an unusual position in investment portfolios. It generates no income — no dividend, no coupon, no rent. Its industrial uses are modest relative to its market value. Its price movements are driven by investor psychology, currency dynamics, and systemic risk perceptions rather than by cash flow projections or earnings forecasts.

Yet gold has been used as a store of value for thousands of years and has, over very long periods, roughly preserved purchasing power even as fiat currencies have depreciated. It has specific portfolio roles that are genuinely difficult to replicate with other assets — and for internationally mobile investors managing wealth across currencies and jurisdictions, these roles may be more valuable than for domestic investors.

The Investment Case for Gold

The rationale for holding gold in a portfolio rests on several distinct arguments:

Hedge against currency weakness: Gold is priced in US dollars, and its price tends to rise when the dollar weakens. More broadly, gold has historically retained value when paper currencies lose purchasing power through inflation or debasement. For investors holding assets in multiple currencies, gold provides a non-currency exposure.

Tail risk protection: During episodes of severe financial system stress — the 2008 global financial crisis, the March 2020 COVID shock, periods of banking sector fragility — gold has historically held or increased its value when most risk assets (equities, credit, property) have fallen sharply. This "safe haven" characteristic is valuable precisely because it activates when it is most needed.

Low correlation with other assets: Gold has low and sometimes negative correlation with equities over long periods. During equity market drawdowns, gold has frequently appreciated or at least held firm, providing cushion to overall portfolio value. This correlation property is the core argument for including gold as a diversifier.

Geopolitical and political risk hedge: For internationally mobile investors who may hold assets in multiple jurisdictions, the risk of political confiscation, capital controls, or systemic regulatory disruption is a real — if low-probability — concern. Physical gold, properly stored in a secure jurisdiction, provides a form of wealth that is not dependent on any counterparty or government.

Limited supply: Gold supply from mining grows at approximately 1–2% per annum — slower than global money supply growth in most periods. This supply constraint is a long-run argument for gold's value preservation.

What Gold Is Not

Understanding gold's limitations is as important as understanding its properties.

Gold produces no income and no cash flow. Over short and medium periods, gold can be highly volatile — it fell over 40% from its 2011 peak to its 2015 trough. It can underperform dramatically during periods of strong economic growth and rising real interest rates, as the opportunity cost of holding a zero-yield asset rises. Gold should not be held in expectation of predictable income or steady compound growth.

Gold is also not a reliable short-term inflation hedge. During the 1980s, gold lost much of its value even as inflation remained elevated in many economies. The relationship between gold and inflation is imperfect and operates more reliably over decades than over years.

Physical Gold: Allocated vs Unallocated

Physical gold can be held in two forms through professional custodians:

Allocated gold is the outright ownership of specific, identified gold bars or coins held in a secured vault. The custodian holds the gold as your property — it does not appear on the custodian's balance sheet. If the custodian becomes insolvent, your allocated gold is not part of the insolvent estate. This is the safest form of gold ownership. It is also the most expensive to hold — storage and insurance costs are typically 0.10–0.25% per annum of the value held.

Unallocated gold is a credit balance with a custodian expressed in troy ounces of gold. You do not own specific bars — you are a creditor of the custodian with a claim on gold. The custodian may not hold 100% gold reserves against these claims (fractional reserve gold banking). In the event of the custodian's insolvency, you would rank as an unsecured creditor. Unallocated gold is cheaper but carries meaningful counterparty risk.

For investors with gold as a portfolio diversifier or portfolio asset, allocated physical gold or gold ETFs backed by allocated gold are the appropriate structure.

Home storage: Gold coins or small bars can be held privately. The considerations are: home or safe custody insurance, inheritance and estate issues, portability (relevant for internationally mobile investors who may relocate), and the premium paid over the gold spot price when purchasing smaller retail gold coins. For meaningful portfolio allocations (USD 50,000+), professional vault custody is standard.

Gold ETFs and ETCs

For most investors, gold ETFs or ETCs provide the most practical, liquid, and cost-efficient route to gold exposure.

SPDR Gold Shares (GLD): The world's largest gold ETF, listed in the US, holding physical allocated gold in HSBC vaults in London. TER: 0.40%. US-domiciled — exposes non-US investors to US estate tax considerations and PFIC issues if held by non-US persons through foreign accounts.

iShares Physical Gold ETC (SGLN): London-listed, UCITS-compliant ETC holding allocated gold in JP Morgan vaults. TER: 0.12%. Backed by physically allocated gold. Appropriate for international (non-US) investors.

WisdomTree Physical Gold (PHAU / PHGP): London-listed, physically backed, allocated gold stored in HSBC or JP Morgan vaults. TER: 0.39%.

Invesco Physical Gold ETC (SGLD): Jersey-incorporated, London-listed, physically backed. TER: 0.12%.

The choice between providers involves TER comparison, custodian quality, vault location (primarily London, which hosts the LBMA gold market), legal structure (ETC vs ETF), and whether the gold backing is truly allocated. All the above are allocated physical structures.

Note on synthetic gold products: Some commodity ETPs use swap agreements to replicate gold price exposure without holding physical gold. These carry counterparty risk. For gold specifically — an asset whose appeal is partly as a hedge against financial system risk — synthetic replication is conceptually contradictory. Physical backing is preferred.

Gold Mining Equities

Gold mining shares provide leveraged exposure to the gold price — a 10% rise in gold prices typically translates to a larger percentage rise in mining share prices, as operating costs are relatively fixed and higher prices flow disproportionately to profits. Conversely, mining shares fall more sharply when gold prices decline.

Additional risks in mining equities include:

• Operational risk: Mining is operationally complex. Geological surprises, labour disputes, permitting issues, and equipment failures affect specific companies.
• Political/jurisdictional risk: Many gold mines are in politically sensitive jurisdictions (West Africa, Latin America, Russia). Government royalty increases, nationalisation risk, and operational restrictions are real.
• Management quality: Capital allocation decisions (particularly around hedging production and acquisition strategy) significantly affect long-term returns.
• Cost base: Gold mining profitability depends on the all-in sustaining cost (AISC) relative to the gold price. Companies with higher AISCs have more operating leverage — greater upside in rising prices, but faster value destruction if prices fall.

Gold mining ETFs (such as VanEck Gold Miners ETF — GDX — or its UCITS equivalent) provide diversified exposure to the sector. Individual mining stocks carry concentrated single-company risk and require specialist analysis.

VAT Treatment: Investment Gold Exemptions

In the EU and the UK, investment gold is exempt from VAT under a specific exemption. Investment gold includes:

• Gold bars and wafers of at least 99.5% purity, with weight, purity, and assay mark, traded at prices close to the spot price.
• Gold coins of at least 90% purity, minted after 1800, used as legal tender in the country of origin, and sold at no more than 180% of their gold content value.

The exemption is important: without it, purchasing 1 kg of gold at the spot price would incur 20% VAT in the UK, creating an immediate loss relative to the investable alternative. The exemption makes physical gold investment practically viable.

UAE levies VAT at 5% on most goods. The treatment of gold varies: certain investment-grade gold products sold by registered dealers may be classified as zero-rated financial services, though the position has complexities and rules should be confirmed with a local adviser.

CGT and Tax Treatment for International Investors

Gold gains are generally treated as capital gains in most jurisdictions where CGT applies. For UK taxpayers, gold is a "chattel" (physical personal property), but gold ETFs and ETCs are treated as capital assets for CGT. Following the rate changes that took effect on 30 October 2024, UK CGT on gains from gold investments is charged at 18% within the basic rate band and 24% above it (the annual exempt amount is £3,000 for 2026/27). Note that certain UK legal-tender gold coins, such as Britannias and Sovereigns, are exempt from CGT.

UAE: No CGT for individuals as of 2026. Gold gains are not taxed.

Cyprus: No CGT on gains from the disposal of titles other than Cyprus immovable property. Gains from gold investments by Cyprus residents are generally not subject to CGT (professional advice should confirm specific circumstances).

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This guide is for general information only and does not constitute regulated investment advice. The value of investments can fall as well as rise and you may get back less than you invest. Gold prices can be volatile. Past performance is not a guide to future returns. Tax treatment depends on individual circumstances and the laws of multiple jurisdictions, which may change. Always seek independent regulated advice before making investment decisions.

How Global Investments can help

Global Investments advises international investors on appropriate gold allocation within a diversified portfolio, including selection between physical gold, ETF/ETC structures, and mining equities. We take account of each client's tax residency, currency framework, and the role gold should play relative to other portfolio assets. Contact us to discuss gold strategy.