Investors often buy gold when they fear trouble ahead, writes Adrian Ash of BullionVault, but it tends to find the strongest investment demand when trouble has already started.
This means while gold pays no income, buying early has proven useful in reducing losses on other, more typically profitable assets.
During the worst year of the last four decades, a UK investor could have nearly halved the 13% losses of 2008 by holding one-tenth gold in a portfolio, otherwise split 60:40 between the FTSE index and gilts.
From the start of 2000 to the end of 2004 - the worst five-year period for UK investors - total returns would have more than doubled to 11% for those holding one-quarter in gold.
With stockmarkets today looking almost as stretched as bond and property prices, buying a little 'investment insurance' may prove smart again. But what is the cheapest, safest way to invest in gold?
Gold in your hand
Coins or small bars are essentially large wholesale bullion bars cut up, re-cast or stamped into smaller pieces. The cost of producing, shipping and retailing these smaller items makes the metal much more expensive per gram. Selling for best price then means having to 'shop around' again.
Rare 'numismatic coins' need expertise to spot and exploit their true historical worth. Mass-produced 'bullion coins' have no such value, yet they still carry a 7%-15% spread between dealer selling and buy-back prices. Buying ingots can be cheaper per gram, but buy-back prices are worse, because people tend not to prefer secondhand over brand-new items.
Because British gold Sovereigns and Britannias are technically 'official currency', UK taxpayers can sell these coins free of capital gains tax (CGT). Against that, weigh the extra dealing costs, the annual CGT allowance on all disposals, and the fact that profits from gold tend to come against offset-able losses on other assets.
Gold in a vault
Keeping gold in specialist vaults has become an increasingly popular choice since the financial crisis began. Investors can now choose from tens of reputable companies for buying, holding and then selling gold inside secure storage.
BullionVault has trebled in size since 2007, and now cares for 37 tonnes of gold - more than most central banks own - split between London, New York, Singapore, Toronto and (most popular) Zurich.
Besides safety, cost has driven this growth. Choosing vaulted gold means an investor can own grams of pure bullion held in the form of a large wholesale-market bar, such as the 400-ounce Good Delivery bars, made by the small group of refiners meeting the strict standards of global trade body, the London Bullion Market Association.
This sidesteps all the fabrication and other costs of coins or small 'retail' bars, slashing round-trip dealing costs to as little as 1%.
Insured storage can then cost as little as 0.01% per month, far less than insuring gold at home. (Keeping £3,000 worth at home may need reporting as a 'high value' item to the contents insurer, since they may raise premiums and demand fitting an insurance-rated safe.)
Liquidity is another benefit, because vaulted gold should be much easier and quicker to sell than having to shop around for buy-back prices.
Due diligence is vital; so-called 'under-vaulting' (or 'double-counting') is the biggest risk facing anyone owning any high-value asset at arm's length. Look for a provider using independent specialists for custody; this should enable you or your client to check the custodian's bar lists against the total quantity of gold reportedly belonging to customers of the provider.
Gold in a trust fund
There are now a range of exchange-traded products (ETPs), backed by gold and available from a number of different asset managers.
More commonly known as an ETF, a trust owns the gold and the shareholder is a beneficiary of a debt owed by the trust and backed by its gold. The share price then tracks movements in the underlying price of wholesale bullion.
The gold owned by an ETF trust may or may not be insured, at the discretion of the custodian caring for it; check the prospectus for details. ETF trading costs will depend on brokerage fees, plus the dealing spread. Annual management fees run from 0.25% to 0.40%, and are slowly deducted from the value of the gold backing the shares each day, effectively reducing the share price.
Some investors worry that, in a financial crisis, the absence of actual gold ownership through an ETF could prove problematic. After all, gold's lack of counterparty or credit risk is central to its safe-haven appeal.
The risk of exchange controls amid a banking or currency crisis could also, potentially, see the trust's bullion trapped in the jurisdiction where it is held (typically the UK), depriving shareholders of the ability to sell and receive funds, which investors holding metal overseas would still enjoy.
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