New UK Legislation is Predicted to Favour Gold
For many years, investing in gold has been seen as a risky method of saving or investment and has generally been disapproved of by the financial services industry, not only in the UK but internationally.
Gold bullion was not seen as profitable enough for financial organisations or advisors (such as banks and stockbrokers), because it is usually purchased and kept as a long term investment, passing it on to future generations. Because of this, financial organisations do not make continuous profits and can therefore be reluctant to promote gold for investment.
On top of this, interest rates were increased to nearly 20% in 1980, causing gold to perform poorly from 1980 through to 2000. This was contrary to the performance of bonds, cash and equities at this time – which were seen as a much safer and more advantageous investment.
The Retail Distribution Review (RDR) was created in June 2006 by the UK’s Financial Services Authority (FSA) (whose main roles are to ensure markets run efficiently and consumers get a fair deal) with the purpose of improving the confidence of the consumer in the retail investment market, and protecting the consumer. This is necessary because of various incidents relating to the financial services industry, involving the abuse of the trust of their clients by the businesses, which has caused the industry’s extremely weak performance.
It is due to be completely implemented by 31st December 2012. It is thought that it will make a major difference in the method that financial services are provided to UK retail investors.
Currently, the main method that financial services are provided is through approximately 30,000 Independent Financial Advisers (IFAs). The IFAs are regulated by the FSA, and expected to take the majority of the blow from the RDR – their commission will be stopped after the RDR has been put in place, which should put gold bullion at an advantage.
Marcus Grubb, the managing director of investment, says “These extremely challenging times mean it’s impossible to quantify the risks for UK investors. They are facing an unprecedented combination of threats to their assets including extreme and unexpected market shocks that can trigger widespread value destruction.”
“As UK investors reduce allocations to traditional investments such as equities and bonds and increasingly dash to cash, they face a double whammy, with the potential for stagnation of capital due to the lack of returns from cash and the increased possibility of inflation as a result of ongoing monetary stimulation.”
“In this context, an urgent reappraisal of how to protect and create wealth is required and our latest research reinforces gold’s credentials as a core portfolio asset which reduces losses and preserves wealth.”
The World Gold Council (WGC) correctly state in their most recent report ‘Gold as a strategic asset for UK investors’ that the range of assets and products being recommended by advisors has been narrowed, that it is imperative that this range is widened, and the new legislation should do so.
“Re-focusing the advisory community and the clients it serves on the importance of asset allocation decisions, not just product selection, sits at the heart of wealth protection”
“Encouraging a broader approach to investing across a wider range of asset classes, based on an understanding of the long-term increase in cross correlations within global investment assets, will be a positive development.” the report rightly states.
Gold can function as a long term investment to maintain assets, a portfolio diversifier and a risk management medium, as shown in plenty of financial reports.
“During most market crises over the last 25 years, gold has consistently increased portfolio gains or reduced its losses,” says the report.
Gold is slowly progressing from only a tiny proportion of the investment market into the mainstream, and the RDR legislation is yet another step in the process. It is also likely that the improvements in the UK will be visible internationally, in countries with similar financial regulations, and they will also help put gold in a position along with bonds, equities and cash – as a primary asset.
Investing in gold as part of a SIPP or SASS pension is increasing in popularity with consumers as it is seen as a “safe haven” asset and because of its potential fo capital growth. Goldmadesimple.com Ltd offers the opportunity to invest in physical gold as part of a pension. For more information on investing in gold as part of your pension follow the link www.goldmadesimple.com/gold-sipp-pension
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