Is it time to join the gold rush?
It provides security when paper assets are heading south. But are there other benefits to buying the metal? Experts tell us about a market with a bright future
Dan Fisher, head of Physical Gold and former investment banker at Merrill Lynch
Gold provides a good balance for an investor’s portfolio. People have been hit very hard because shares, bonds, cash and property have all moved in the same direction at the same time, but gold always tends to perform inversely to the traditional paper assets and so that provides a hedge.
Previously in downturns, people have tended to leave their money in banks and ride out the storm, going back into property or stocks and shares afterwards, but the returns are poor due to low interest rates, you are taxed and there are the counter-party risks. This strengthens the case for investing in physical gold. There is no counterparty risks — you own the metal, which is tax-free.
You could buy a 1oz gold Britannia coin for around £715. Other popular coins are Sovereign coins, and you can buy a 1oz coin for £170.
We have found that people are either investing a lump sum, or are investing quarterly — almost like a saving scheme — to build up their collection and then sell at a profit or keep as an heirloom. We are getting increasing enquiries from people in their early 20s who have never really saved, and from pensioners who have money sitting in banks and are now worried about their pension. Gold has historically risen in times of recession and when the dollar and mainstream assets have fallen. The current price of around $900 per oz is expected to rise to $2,000 or higher in the next two years.
Dominic Picarda, associate editor of the Financial Times’s Investors Chronicle magazine
I absolutely advise investing in gold. The great thing about gold is that it has a proven record against inflation or deflation. I can see it going above $1,200.
There have never been more ways to invest in gold from the retail investor’s perspective.
People who have a really pessimistic view of the world tend to want to hold it in its physical form. The safest way of doing that is to hold it in a vault in Switzerland.
Financially speaking, exchange-traded funds (ETFs) and exchange-traded commodities (ETCs) are probably the most sensible way of getting exposure to gold. Holding physical gold, such as keeping gold coins in your house, is not a particularly efficient way of holding gold at all.
The difference between buying and selling costs are enormous. I wouldn’t say that was a particularly attractive way to hold it.
Adrian Ash, head of research at BullionVault.com, a gold dealing and ownership service
Gold has been a bull market in this crisis. Growth over the past two years has been phenomenal. People turn to gold when other things aren’t working — if they are fearful of credit risk, counterparty default and insolvency.
The volume of gold that our customers own grew by 43 per cent growth in the first six months of this year and we have done 70 per cent more trade in the first six months of 2009 than we did during the whole of last year.
While it has been the most successful investment class for investors this decade and is becoming more popular, it is still under-invested. Gold probably accounts for two per cent of all investable wealth in the developed world. It is still a marginal activity.
Rozanna Wozniak, investment research manager, World Gold Council
There has been a significant increase in gold investments since the middle of last year. Because of the financial crisis, investors have less confidence in other asset markets that have seen sharp falls in prices. In all this uncertainty, people are looking to protect their wealth. Gold is not an investment for people looking to make a quick buck. It’s an insurance.
In the second half of last year, we saw massive flows into bars and coins. There have also been strong flows into gold exchange traded funds [securities designed accurately to track the gold price], an easy way for investors to have the safety of investing in gold.
In the first quarter of 2009, European flows into bars and coins totalled 122 tonnes, compared to 17 tonnes in the same period of last year.
Carl Astorri, Head of Investment Strategy Coutts & Co
In general, we prefer riskier assets, such as equities and corporate bonds. Unlike almost all assets, gold produces no yield and is prized as a store of value. This has been seen as a virtue during the crisis, and in this environment gold looks attractive as a hedge against financial risks from last year’s crisis and potential future risks.
The gold price should be supported by investors increasing their gold holdings in order to guard against these risks. We saw evidence of that in the first quarter of the year. In addition, by providing a hedge against these risks, holding gold in investment portfolios gives scope to take larger positions in growth assets, such as emerging market equities, without increasing the overall risk of the portfolio beyond prudent levels.