Lootman wrote:Steveam wrote:Being U.K. tax resident it is useful to know that legal tender (so gold coins issued by the Royal Mint) are not subject to CGT. Most of the gold kilo coins (for example the Prince George birth celebration gold kilo) are marked as £1000.
A kg of gold would be worth about £60,000. It might technically be legal tender but a little difficult to spend, I would think.
I would worry that there are not enough of them in circulation to maintain a liquid market. And dealers might need a healthy spread to trade them.
In a non-fiat era (gold and silver coins = money), Sovereigns £1 legal tender value and silver coins for pennies were the obvious preference. Being finite inflation broadly = 0%, 1718 to 1914 for instance, as did the Pound remained aligned to gold, a relatively consistent £4.24/ounce of gold. Hence a Sovereign being near a quarter ounce of gold (0.2354 ounces in a Sovereign x 4.24 = £1).
That correctly favours lenders, borrowers have to pay a real rate of return in order to borrow. Deposit money (gold sovereigns) into a bank account that paid interest = real rate of return and safe keeping of your gold/money.
The change over to fiat currency is inclined to just see debasement of the currency, tendency for the price of gold to rise over time, just inflation, no matching deflation, sometimes borrowers win, sometimes lenders win - but less so after taxation on nominal gains (that include a element of currency debasement).
In August 1992 the price per ounce of gold dipped to £170, so you could buy a Britannia one ounce gold coin with that, and where it has a £100 legal tender value. If instead that had dipped to a £100/ounce price then at that level you have the certainty that if the price fell further you still had a coin worth £100 as legal tender or if the price of gold rose you have metal worth >£100. Win/win. Fiat in contrast is more a case of lose/lose, is really just another form of taxation.
Under gold standard (British Empire days) in effect the Pound was aligned to gold, under (US) fiat the tendency is to direct the price of gold to the Dollar. That is achieved by the US treasury having bought up American gold in 1933 such that it has a 8000 tonne mountain of it, that it 'lends' to the fed at a $42.222 per ounce rate, so at a $2111/ounce market rate the Fed has 50x leverage, and see that leverage increase the higher the price of gold rises. In turn the fed can use that leverage in order to buy (or sell) leveraged products such as Futures/Options, and there's around 122 times more paper-gold (Futures) than there is physical gold, indicative of 122x leverage factor. So the fed conceptually has 50x122=6100 leverage factor on 8000 tonnes of gold, approaching the equivalent of 50 million tonnes of gold (more gold than in the whole world).
The West is foolishly letting physical gold move to Asia (China), in turn China prohibits gold exports. There are multiple claims to each ounce of physical gold, a queue of 122 with a claim on each 1 ounce of gold. Fort Knox is empty claims are in reflection of that. But how might that be settled if there was a gold-rush (rush for physical gold to be delivered), well possession is 9/10ths as they say - the holder gets to choose. Noteworthy is the the Bank of England secures 5000 tonnes of gold, around 400,000 bars averaging around 400 ounces each (have to be in the range 350 troy ounces to 430 troy ounces to be considered as being a London Delivery Bar).
Gold isn't a barbaric relic as some suggest, even the existing system is still fundamentally a gold based system, but where the Dollar is directed towards that in a more dynamic manner, not 1:1 and where debasements can and will periodically occur, sideways channel, periodic steps type price progression. Which is a useful diversifier, low/inverse correlation to fiat currency. Both gold and stock prices (price only) might be broadly expected to rise over time, as fiat currency is debased, approximating CPI + growth (productivity). Stocks additionally pay dividends, typically 3% net (4% gross), however 50/50 stock/gold along with a 1.5% SWR is inclined to yield much the same as 100% stock with 0% SWR, but where 50/50 stock/gold is inclined to yield that same overall reward with less volatility (due to the tendency for fiat/gold having a element of inverse correlation).
https://www.portfoliovisualizer.com/bac ... yjvBBZ0lZc (US data) indicates 1972-2023 inclusive total returns and 50/50 stock/gold 10.22% annualised with a 12.96% standard deviation, versus 10.51% annualised for just stock with a 15.77% standard deviation, 50/50 provided the better risk adjusted reward (0.47 Sharpe Ratio versus 0.43).
If you can achieve a similar reward from multiples of assets compared to a single asset, then diversification helps reduce concentration risk (a major risk factor). Own a British home, some US stocks, some gold and you have land/stock/commodity assets, £/$/global (non fiat) currency diversification, imputed/dividends/SWR income diversification. Add in bonds such as via a state/occupation pension on top of that and its a adequately diversified portfolio. Better than being 100% stock and having to rely upon that to pay rent etc.
Holding physical gold better protects against if there is a gold-rush, desire by many (122x paper gold to physical gold ratio) to be delivered "their gold".