Golden

It is easy to invest in gold. Knowing whether now is the right time to do so, is not quite so clear

“Gold coins include South African Krugerrands, British Britannias or American Eagles.”

opportunity?
By Richard Willsher

O

ver the last month the price of gold has set a series of new records. At the time of writing, the price set daily in London is US$1,341 or £852.78 per ounce. Looking at the bigger picture, research from the World Gold Council (WGC), which represents the world’s leading gold mining companies, suggests that the long-term trend for the price of gold is upward. However, as the graph shows, it is not necessarily a smooth ride. Between 1980 and 2000 the price shows a marked downward swing. Given the rate at which the gold price has risen lately, investors may be asking themselves whether they should buy some; but why would one want to? Charles Morris, Head of Absolute Return at HSBC Global Asset Management (UK) Ltd has some answers. “You don’t buy gold to become rich,” he says. “You buy it to preserve wealth. At a time when we are in a wealth destruction cycle, gold comes into its own. The case for gold is that it is real money and if there is any problem in the financial system then that gold will become very valuable indeed. There

are lots of things to worry about out there and there are still some long-term problems in the economy and in the financial sector. We want to own things that can survive these environments; and gold is a very liquid asset.” How to invest The easiest way to invest is to buy either coins or small bars. Coins include South African Krugerrands, British Britannias or American Eagles for example. These vary in price depending on the size of the coin and the state of the market at any time. Coins range in size from one twentieth of an ounce to as much as 1,000 grammes, with various sizes in between. They can be purchased from bullion dealers and should not be confused with numismatic coins collected by coin collectors. Bullion dealers also sell bullion bars, which range from as little as one gramme to 1,000 grammes. A good source of information on this is www.goldbarsworldwide.com which lists the details of accredited gold bar manufacturers. To find a bullion dealer for coins or bars, a good place to start is the WGC’s directory at www.invest.gold.org.

The WGC adds this useful advice, “Bullion bars and coins are priced on the basis of their fine gold content. However, different premiums may be charged by the same dealer, depending on the availability of each type of bar or coin. You may also want to check, at the time of purchase, how much commission would be charged to buy back any bars or coins should you wish to trade them in the future. Apart from your individual preferences for the way bullion coins and bars look, the premium charged over and above the gold price would probably be the deciding factor.” Gold accounts and funds Other ways to invest in gold include opening a gold account. The investor buys gold through a bullion brokerage, which is then held by a bank. These accounts are termed “allocated” or “unallocated,” with an allocated account, the bank stores the gold and the investor has title to it. The bank will charge a fee to cover storage and insurance. Unallocated accounts do not hold specific pieces of gold bullion allotted to particular clients but clients hold part of a larger quantity. These accounts do not incur the same charges but the bank may reserve the right to lease out the gold.
Annual average price of gold (USD and GBP) 1900-2009
1,200 1,000 800 600 400 200 0 1900 1910 1920 1930 1940 1950 1960 1970 1980
Source: Global Insight, WGC

USD

GBP

1990

2000

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Gold price, USD per ounce, London PM fix
1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Global Insight, WGC

of inflation, gold is still a good buy. Others, who have charted the gold price in relation to previous recessions, say that the price tends to bubble in these periods and then fall back and that this may be happening now. For sure there will be price fluctuations whenever you buy. Gold is an ungoverned market where supply and demand determine the price. Right now there is plenty of demand but how long this may persist is anyone’s guess. In the final analysis a couple of facts about gold are enduring, one is that it has been prized by human beings for millennia and this looks unlikely to change just yet. Moreover, gold is generally in short supply and becoming increasingly difficult to mine or recover by recycling. These support the case for investing in gold, but as with so much successful investing, m timing has a very big part to play…

2009

2010

A third and increasingly popular route to owning gold is to buy a share in a fund that has invested in gold. These can include unit trusts and investment trusts but these invest in the shares of gold mining companies whose prices tend to be influenced by the rises and falls of the gold price. However, as with other share prices, they are also affected by factors that may have little to do either with the price of gold or the performance of particular funds. Buying shares in exchange traded funds (ETF), which are quoted on the Stock Exchange, provides a more direct link to the price of gold. These track a gold price index and apart from normal share trading costs do not bear any other management charges or commissions which unit trusts and investment trusts typically do. One of the downsides with investing in gold is that while you hold it, it provides no income; no interest or dividend for example, which other investments do. Therefore whether or not gold is good to invest in will depend purely and simply on its price. Looking at the graph shown above, one question sticks out like a sore thumb: is this the time to invest? Some commentators argue that in real terms, allowing for the rate

Natural History

12 December 2010 Bonhams & Butterfields, los angeles A gold nugget hailing from the Mandiana region in Eastern Guinea, West Africa, will go up for sale at Bonhams & Butterfields in Los Angeles in December. The rare nugget named the “Peace Keeper” was discovered in 1997 by local miners using traditional labour-intensive excavation methods. Weighing in at 1382.5-grammes, it is believed to be one of the world’s finest examples. But with the continuing hike in gold prices and the nugget’s perceived high gold content, bidders should expect to pay in the region of $110,000 to $135,000 for it. The auction will also feature additional gold nuggets, mineral specimens, lapidary works of art, fossils, gemstones and jewellery. Advance previews will take place at Sunset Boulevard in Los Angeles from 10 December. By Michele Martensen

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