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It is easy to invest in gold. Knowing whether now

is the right time to do so, is not quite so clear

By Richard Willsher

Over 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 worlds 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 dont 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 nancial 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 nancial 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 nd a bullion dealer for

coins or bars, a good place to start is the

WGCs directory at www.invest.gold.org.

opportunity?

The WGC adds this useful advice, Bullion bars

and coins are priced on the basis of their ne

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 specic 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 o gold (USD and GBP) 1900-2009

1,200

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Source:GlobalInsight,WGC

1,000

800

600

400

200

0

U SD G BP

36 marketthe market 37the

Gold coinsinclude South AfricanKrugerrands, BritishBritannias orAmerican Eagles.

8/8/2019 Market - Gold

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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 inuenced by the rises and falls of

the gold price. However, as with other share

prices, they are also affected by factors thatmay 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

of ination, 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 uctuations

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 anyones

guess. In the nal 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 difcult to mine or recover by

recycling. These support the case for investing in

gold, but as with so much successful investing,

timing has a very big part to play

38 marketthe

Gold price, USD per ounce, London PM fx

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Global Insight, WGC

1,200

1,000

800

600

400

200

1,300

1,100

900

700

500

300

Natural History12 December 2010Bnhm & Befed,

l angee

A gold nugget hailing rom theMandiana region in EasternGuinea, West Arica, will goup or sale at Bonhams &Butterfelds in Los Angelesin December. The rarenugget named the PeaceKeeper was discovered in1997 by local miners usingtraditional labour-intensiveexcavation methods. Weighingin at 1382.5-grammes, itis believed to be one o theworlds fnest examples. But with the continuinghike in gold prices and the nuggets perceivedhigh gold content, bidders should expect to payin the region o $110,000 to $135,000 or it. Theauction will also eature additional gold nuggets,mineral specimens, lapidary works o art, ossils,gemstones and jewellery. Advance previews willtake place at Sunset Boulevard in Los Angeles rom10 December.

By Michele Martensen

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