“Gold coins

include South African

Krugerrands, British

Golden
It is easy to invest in gold. Knowing whether now
is the right time to do so, is not quite so clear
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
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
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 Annual average price of gold (USD and GBP) 1900-2009
Other ways to invest in gold include opening a 1,200
USD GBP
gold account. The investor buys gold through
1,000
a bullion brokerage, which is then held by a
bank. These accounts are termed “allocated” or
800
“unallocated,” with an allocated account, the
bank stores the gold and the investor has title 600
to it. The bank will charge a fee to cover storage
and insurance. Unallocated accounts do not 400

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
on this is www.goldbarsworldwide.com
which lists the details of accredited gold bar
manufacturers. To find a bullion dealer for
hold specific pieces of gold bullion allotted
200
to particular clients but clients hold part of a
larger quantity. These accounts do not incur 0
Source: Global Insight, WGC

any problem in the financial system then that coins or bars, a good place to start is the the same charges but the bank may reserve the 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

gold will become very valuable indeed. There WGC’s directory at www.invest.gold.org. right to lease out the gold.

36 market
the market
the 37
Gold price, USD per ounce, London PM fix of inflation, gold is still a good buy. Others,
1,300 who have charted the gold price in relation to
1,200 previous recessions, say that the price tends to
1,100 bubble in these periods and then fall back and
1,000 that this may be happening now.
900
800
For sure there will be price fluctuations
700
600 whenever you buy. Gold is an ungoverned
500 market where supply and demand determine
400 the price. Right now there is plenty of demand
300
Source: Global Insight, WGC but how long this may persist is anyone’s
200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
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
A third and increasingly popular route to looks unlikely to change just yet. Moreover,
owning gold is to buy a share in a fund that has gold is generally in short supply and becoming
invested in gold. These can include unit trusts increasingly difficult to mine or recover by
and investment trusts but these invest in the recycling. These support the case for investing in
shares of gold mining companies whose prices gold, but as with so much successful investing,
tend to be influenced by the rises and falls of timing has a very big part to play… m

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.
Natural History
One of the downsides with investing in gold is 12 December 2010
that while you hold it, it provides no income; no Bonhams & Butterfields,
interest or dividend for example, which other Los Angeles
A gold nugget hailing from the
investments do. Therefore whether or not gold is Mandiana region in Eastern
good to invest in will depend purely and simply Guinea, West Africa, will go
on its price. Looking at the graph shown above, up for sale at Bonhams &
one question sticks out like a sore thumb: is Butterfields in Los Angeles
in December. The rare
this the time to invest? Some commentators nugget named the “Peace
argue that in real terms, allowing for the rate 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

38 market
the