Why do investors hold gold in a portfolio?

Gold is held primarily as portfolio insurance rather than for income or capital growth. It tends to perform well when confidence in currencies and financial systems is low — during high inflation, dollar weakness, geopolitical crises, or financial market stress. It has a low or negative correlation with equities in many crises, providing genuine diversification. Unlike bonds, gold has no credit risk; unlike currencies, no government can print more of it. A modest gold allocation (5–10%) has historically improved risk-adjusted returns in a diversified portfolio over long periods.

Is gold a reliable inflation hedge?

Gold's inflation-hedging properties are real but imperfect. Over very long periods (decades), gold has broadly maintained its purchasing power. Over shorter periods — including some inflationary episodes — gold has underperformed inflation. The 2021–2022 inflation surge saw gold flat-to-down in real terms even as CPI surged, before recovering strongly. Gold performs best as an inflation hedge when inflation expectations are rising and central banks appear behind the curve — it is less effective when central banks respond aggressively with rate rises, as higher real yields increase the opportunity cost of holding gold.

What is the difference between investing in gold via an ETC versus physical gold?

A gold Exchange Traded Commodity (ETC) — such as iShares Physical Gold ETC (SGLN) or Invesco Physical Gold ETC — holds physical gold in allocated vaulted storage on behalf of investors. Each unit represents a set weight of gold. ETCs offer the economic exposure to gold without the practical challenges of physical ownership (storage, insurance, authentication). Physical gold (coins, bars) gives the investor direct possession — there is no counterparty risk — but requires secure storage, insurance, and involves transaction costs when buying and selling. For most internationally mobile investors, an ETC is more practical.

How is gold taxed in the UK for international investors?

Physical gold bullion is exempt from VAT in the UK (as investment gold). Gains on disposal are subject to Capital Gains Tax, with UK-resident investors utilising the CGT annual exemption (£3,000 as of 2026/27) and paying CGT at their applicable rate on gains above this. Gold ETCs are treated as capital assets for CGT purposes in the same way. There is no specific CGT exemption for gold — British gold coins (Sovereigns and Britannias) are technically legal tender and therefore technically exempt from CGT, though this should be confirmed with a tax adviser. Non-UK residents may face different treatment in their country of tax residence.

Why are gold mining stocks more volatile than gold itself?

Gold mining stocks provide leveraged exposure to the gold price: when gold rises 10%, a well-managed miner may see profits rise by significantly more (because its production costs are largely fixed — a higher gold price goes directly to the bottom line). But this leverage works both ways — in falling gold price environments, miner shares often fall more than the metal. Mining stocks also carry company-specific risks: operational problems, cost overruns, political risk in the countries where they mine, management quality, and debt levels. They are equity investments with gold price sensitivity, not a direct gold substitute.

Gold and Silver Investing for International Investors | Global Investments

The Role of Precious Metals in an International Portfolio

Gold has been a store of value for thousands of years. In modern portfolio management, it occupies a distinct position: an asset with no cash flows, no yield, and no industrial use that nonetheless has a place in a well-constructed international portfolio as insurance against financial system stress, currency debasement, and geopolitical uncertainty.

Silver sits alongside gold in the precious metals category but with an important difference: approximately half of annual silver demand is industrial (electronics, solar panels, medical devices), giving it a dual character as both a precious metal and an industrial commodity.

Neither gold nor silver should be confused with a core return-generating investment. They do not pay dividends, do not compound earnings, and do not have the long-run return potential of equities. Their value in a portfolio is as diversifiers — assets whose behaviour under stress conditions differs from financial assets like bonds and equities, improving the resilience of the overall portfolio.

Why Gold Performs As It Does

Understanding the drivers of gold's price helps investors assess when gold is likely to add value in their portfolio.

Dollar Weakness

Gold is priced in US dollars globally. When the dollar weakens, gold becomes cheaper in non-dollar currencies, stimulating demand and pushing up the USD price of gold. Conversely, a strengthening dollar tends to create headwinds for gold. This inverse relationship with the dollar means gold provides natural currency diversification for USD-heavy portfolios — when the dollar falls, gold rises, partly offsetting currency translation losses.

Real Interest Rates

Gold pays no yield. Its opportunity cost is the real return available from holding government bonds or cash — specifically, the real yield (the yield above inflation). When real yields are low or negative, the opportunity cost of holding gold is minimal, making it more attractive. When real yields are high (as in a period of tight monetary policy with falling inflation), the opportunity cost of holding gold increases, typically weighing on the gold price.

This explains why gold performed well in the 2019–2020 zero real yield environment and came under pressure in 2022 when the US Federal Reserve raised rates aggressively — though gold recovered as geopolitical concerns (Ukraine war, Middle East conflict) created demand.

Geopolitical Safe Haven

Gold reliably attracts capital during periods of geopolitical crisis and financial system stress. Investors and governments move into gold when trust in financial counterparties is low, when sanctions risk is elevated (as with Russia's reserves), or when systemic financial risk is perceived (as during the 2008-9 financial crisis, when gold rose sharply). This safe-haven demand is particularly strong from emerging market central banks and governments who have increased gold reserves significantly since 2022 as an alternative to USD-denominated assets that can be frozen.

Inflation (Long Run)

Over very long periods, gold has broadly maintained purchasing power — an ounce of gold in ancient Rome could reportedly buy a centurion's outfit; today an ounce of gold buys a reasonable men's suit. This very long-run inflation protection is real but of limited relevance for most investment horizons.

Over shorter periods, gold's inflation-hedging properties are less reliable. Gold underperformed badly in the inflation of the 1980s once Paul Volcker raised real rates aggressively; it performed poorly in the 2021-22 inflationary surge before recovering.

Central Bank Demand

A structural feature of the 2020s gold market has been accelerating demand from emerging market central banks — particularly China, Russia (pre-sanction freezing), India, Turkey, and others. These institutions have been diversifying away from USD-denominated reserves (Treasuries) toward gold, reflecting both diversification logic and concern about the ability of the US to freeze dollar-denominated assets via sanctions. This structural demand has provided a price floor that was absent in earlier gold market cycles.

Silver: The Industrial Precious Metal

Silver shares much of gold's precious metal characteristics — it is a traditional store of value, it responds to many of the same macroeconomic and geopolitical drivers, and it has no credit risk. But roughly half of annual silver demand is industrial:

Solar panels: Silver paste is used in photovoltaic cells. Rapid expansion of solar energy globally is a structural demand driver.
Electronics: Silver's exceptional electrical conductivity makes it integral to circuit boards, connectors, and components.
Medical: Silver has antibacterial properties and is used in medical devices, coatings, and dressings.
Electric vehicles: EVs use significantly more silver than internal combustion engine vehicles in electrical components.

This industrial demand component gives silver a cyclical overlay — silver tends to outperform gold during economic expansions (when industrial demand is robust) and underperform during economic contractions. It is generally more volatile than gold.

The Gold/Silver Ratio

The gold/silver ratio measures how many ounces of silver it takes to buy one ounce of gold. Historically, the ratio has ranged widely — from under 30 to over 120. Periods when the ratio is historically high (silver cheap relative to gold) have sometimes provided attractive entry points for silver; periods when the ratio is low (silver expensive relative to gold) have sometimes favoured gold.

As a technical observation, the ratio is used by precious metals investors to assess relative value, though it is not a precise timing tool. As of 2026, the ratio has varied in the 70–90 range — historically elevated, suggesting silver may be cheap relative to gold on a historical basis.

How to Access Gold and Silver

Physical Gold (Coins and Bars)

Direct ownership of physical gold — in the form of investment coins (UK Sovereign, Britannia, South African Krugerrand, Canadian Maple Leaf) or bars (1oz to 400oz) — gives investors unmediated ownership with no counterparty risk. However:

Storage: Physical gold must be securely stored — either in a home safe (not recommended for large quantities) or in a professional vault. Vault storage charges are typically 0.10–0.30% per annum.
Insurance: Insuring physical gold adds further cost.
Transaction friction: Buying and selling physical gold involves bid-ask spreads with dealers, authentication checks, and logistics that make it more cumbersome than financial instruments.
VAT: Investment gold (bullion coins and bars of defined purity) is exempt from VAT in the UK. Silver bullion is not VAT-exempt in the UK (20% VAT applies), which significantly affects the economics of physical silver ownership.

UK CGT note: British gold Sovereigns and Britannias are legal tender and technically exempt from CGT under the "sterling" exemption, though HMRC guidance on this should be confirmed for individual circumstances before relying on it.

For internationally mobile investors, physical gold ownership raises practical questions around storage jurisdiction, insurance when relocating, and the practicality of holding physical assets across multiple countries.

Gold ETCs (Exchange Traded Commodities)

Gold ETCs hold physical gold in allocated vaulted storage (in the case of physically backed ETCs) on behalf of investors. Each unit represents a specific gold weight, and the ETC price tracks the gold spot price closely.

Key UCITS gold ETCs as of 2026:

iShares Physical Gold ETC (SGLN): The largest gold ETC by AUM in Europe. Backed by physical allocated gold held by JP Morgan Chase Bank. TER 0.12%.
Invesco Physical Gold ETC (SGLD): Physically backed, very similar structure.
WisdomTree Physical Gold ETC: Alternative physically backed option.
SPDR Gold Trust (GLD): US-listed; non-UCITS. Appropriate only for non-UK/EU investors or those accessing via US brokers. UK/EU investors should use UCITS equivalents.

ETCs are not structured as UCITS funds (they are debt instruments backed by gold, technically) but are UCITS-eligible for inclusion in UCITS portfolios. They trade on exchanges like equity ETFs with full intraday liquidity.

For silver, iShares Physical Silver ETC provides equivalent exposure.

Gold Mining Stocks

Gold mining companies — producers such as Barrick Gold, Newmont, Agnico Eagle, and Fresnillo — provide leveraged exposure to the gold price. When gold rises, mining profitability typically rises faster (because production costs are relatively fixed); when gold falls, miner shares often fall harder.

Mining stocks also carry company-specific risks:

Operational: mine failures, grade disappointments, cost blowouts.
Jurisdictional: many gold mines operate in politically complex environments (West Africa, Latin America, Central Asia).
Management: capital allocation decisions, hedging practices, dividend policy.
Debt: highly leveraged miners are particularly vulnerable to gold price falls.

For broad gold mining exposure, ETFs exist:

VanEck Gold Miners UCITS ETF (GDX): Tracks the NYSE Arca Gold Miners Index. Largest gold miner ETF by AUM.
VanEck Junior Gold Miners UCITS ETF (GDXJ): Smaller, earlier-stage miners — higher risk, potentially higher return.

Mining stocks typically have a higher correlation with broader equity markets than physical gold, making them a less pure portfolio hedge than ETCs.

Gold Streaming and Royalty Companies

A specialist subset of gold investment, streaming and royalty companies (Franco-Nevada, Wheaton Precious Metals, Royal Gold) provide upfront capital to mines in exchange for the right to buy a percentage of production at a below-market fixed price. They have lower operational risk than miners (no direct mine exposure) but retain gold price upside. They trade on stock exchanges like any equity.

Gold Allocation in an International Portfolio

A common guideline is that gold should represent 5–10% of a total investment portfolio as insurance. This is not a precise science — the right allocation depends on:

The investor's overall risk profile and portfolio composition.
Whether other real assets (property, infrastructure, inflation-linked bonds) are already present.
The investor's view on inflation, the dollar, and geopolitical risk.
The investor's need for income (gold generates none).

A 5% allocation in a £1m portfolio (£50,000) provides meaningful insurance in a crisis without being large enough to materially drag on returns in periods when gold underperforms equities.

Silver, given its additional industrial complexity and higher volatility, is generally treated as a smaller, more speculative component than gold — perhaps 1–3% of a total portfolio for investors who want precious metal diversification beyond gold.

Practical Considerations for Internationally Mobile Investors

Holding structure: Gold ETCs within an offshore investment bond accumulate gross — interest and gains are not subject to annual income or capital gains tax. For investors who hold gold for portfolio insurance over a long period, deferring any tax on disposal can be valuable.

Currency: Gold ETCs are typically priced in USD but available in GBP-denominated units. The GBP price of gold reflects both the gold price and GBP/USD movements — gold in GBP terms tends to perform best when both gold rises and sterling weakens.

Liquidity: Physical gold ETCs on major exchanges have extremely high liquidity during market hours. Physical gold itself is less liquid but can generally be sold to major dealers within days.

How Global Investments Can Help

Global Investments advises internationally mobile clients on how gold and silver fit within a broader multi-asset portfolio. We do not advocate gold as a speculative trade — it is insurance, and like all insurance, its role is to protect the whole portfolio in adverse scenarios rather than to generate the highest standalone return.

We help clients determine appropriate allocation sizes, select between physical ETCs and equity-based alternatives, and ensure gold holdings are structured efficiently from a custody and tax perspective.

To discuss whether a gold or precious metals allocation makes sense in your international portfolio, contact our advisory team.

Capital is at risk. The value of precious metals, ETCs, and mining stocks can fall as well as rise. Past performance is not a reliable indicator of future results. Gold and silver do not pay income. Tax treatment depends on individual circumstances and may change. This article is for information purposes only and does not constitute personalised financial advice.

This guide is for general information only and does not constitute financial advice or a personal recommendation. The value of investments can fall as well as rise and you may get back less than you invest. Past performance is not a guide to future returns. Tax rules, investment regulations, and the availability of specific investment vehicles change — always verify current rules and seek advice from a qualified independent financial adviser before making any investment decisions.

Investing in Gold and Silver: A Guide for International Investors