Why gold?
Gold has attracted investors throughout the centuries, protecting their wealth and providing a 'safe haven' in troubled or uncertain times. This appeal remains compelling for modern investors, although there are also a number of other reasons that underpin the widespread renewal of investor interest in gold. Gold has long been viewed as a safe haven against volatile stock markets and inflation (it has maintained its value in real terms for decades) and the market jitters have been persuading many investors to seek out gold as a diversity play.
Safe Investment
In volatile and uncertain times, there is typically a 'flight to quality' as investors seek to protect their capital by moving it into assets considered to be safer stores of value. Gold is among a handful of financial assets that do not rely on an issuer's promise to pay, offering refuge from default risk. It provides insurance against extreme movements that often occur in the value of traditional asset classes in unsettled times.
Diversification of Portfolio
Most investment portfolios are invested primarily in traditional financial assets such as stocks and bonds. The reason for holding diverse investments is to protect the portfolio against fluctuations in the value of any single asset or group of assets that react in a common fashion. Portfolios containing gold are generally more robust and less volatile than those that do not.
Risk Management
On the whole, gold is significantly less volatile than most commodities and many equity indices. In this respect it tends to behave more like a currency. Including assets with low volatility in a portfolio will help to reduce overall risk, with a beneficial effect on expected returns. Risk factors that may affect the gold price are quite different in nature from those that affect other assets.
Demand and Supply
Demand for gold is widely spread around the world. East Asia, the Indian sub-continent and the Middle East accounted for 70% of world demand in 2005. 53% of demand is attributable to just five countries - India, Italy, Turkey, USA and China, each market driven by a different set of socio-economic and cultural factors. Rapid demographic and other socio-economic changes in many of the key consuming nations are also likely to produce new patterns of demand. Jewellery consistently accounts for around three-quarters of gold demand. In the 12 months to December 2006, this amounted to US$44 billion, making jewellery one of the world's largest categories of consumer goods. In terms of retail value, the USA is the largest market for gold jewellery, whereas India is the largest consumer in volume terms, accounting for 22% of demand in 2006.
Demand in Investment
Gold investment can take many forms, and some investors may choose to combine two or more of these for flexibility. The distinction between buying physical gold and gaining exposure to movements in the gold price is not always clear, especially since it has always been possible to invest in bullion without actually taking physical delivery. The growth in investment demand has been mirrored by corresponding developments in ways to invest and there are now a wide variety of investment products to suit both the private and institutional investor
How to Invest
The price of gold has soared – over the past three months it has risen by around 18 per cent – while global equity markets have fallen.
The price rise has been driven by nervous investors seeking a safe haven for their money and, while the extraordinary returns seen in recent months are unlikely to continue, there is a strong argument that gold will remain a solid investment throughout 2008 – especially if the jitters continue.
There is an increasingly wide range of methods available to investors wanting to buy gold or gain exposure to gold price movements – from gold coins to complex structured financial products
Exchange Traded Funds
These are not technically funds because they follow a single security. ETF gold securities are traded on the London Stock Exchange. They essentially track the gold price and can be traded daily - all you pay is the dealing charge of around 0.4 per cent. They are also regulated financial products. Visit
http://main.jhtml/?xml=/http:www.exchangetradedgold.com http://www.etfsecurities.com/ for more information.
Unit and Investment Trust
These are few and far between, the most popular being BlackRock Merrill Lynch Gold & General, which invests in the shares of gold mining companies as well as other commodity businesses. Advisers reckon general commodity funds could also do the job for private investors as they dabble in gold-related stocks - JPM Natural Resources and ACDS Australia Natural Resources remain popular. Gold mining equities tend to be more volatile than the gold price.
Coins and Small Bars
Bullion coins and small bars offer private investors an attractive way of investing in relatively small amounts of gold and they are exempt from VAT. Bullion coins and small bullion bars contain a minimum of 99.5 per cent fine gold. Gold bars start at around pounds 39 for a 2.5g bar, rising to pounds 11,957 for a 1kg bar. Visit bullion dealers such as Baird & Co (http://www.goldline.co.uk/).
Gold Accounts
Gold bullion banks offer two types of gold account - allocated and unallocated. An allocated account is effectively like keeping gold in a safety deposit box and is the most secure form of investment in physical gold. The gold is stored in a vault owned and managed by a recognised bullion dealer or depository.
With an unallocated account, on the other hand, investors do not have specific bars allotted to them. Traditionally, one advantage of unallocated accounts has been the absence of any storage or insurance charges, because the bank reserves the right to lease the gold out.
Gold has attracted investors throughout the centuries, protecting their wealth and providing a 'safe haven' in troubled or uncertain times. This appeal remains compelling for modern investors, although there are also a number of other reasons that underpin the widespread renewal of investor interest in gold. Gold has long been viewed as a safe haven against volatile stock markets and inflation (it has maintained its value in real terms for decades) and the market jitters have been persuading many investors to seek out gold as a diversity play.
Safe Investment
In volatile and uncertain times, there is typically a 'flight to quality' as investors seek to protect their capital by moving it into assets considered to be safer stores of value. Gold is among a handful of financial assets that do not rely on an issuer's promise to pay, offering refuge from default risk. It provides insurance against extreme movements that often occur in the value of traditional asset classes in unsettled times.
Diversification of Portfolio
Most investment portfolios are invested primarily in traditional financial assets such as stocks and bonds. The reason for holding diverse investments is to protect the portfolio against fluctuations in the value of any single asset or group of assets that react in a common fashion. Portfolios containing gold are generally more robust and less volatile than those that do not.
Risk Management
On the whole, gold is significantly less volatile than most commodities and many equity indices. In this respect it tends to behave more like a currency. Including assets with low volatility in a portfolio will help to reduce overall risk, with a beneficial effect on expected returns. Risk factors that may affect the gold price are quite different in nature from those that affect other assets.
Demand and Supply
Demand for gold is widely spread around the world. East Asia, the Indian sub-continent and the Middle East accounted for 70% of world demand in 2005. 53% of demand is attributable to just five countries - India, Italy, Turkey, USA and China, each market driven by a different set of socio-economic and cultural factors. Rapid demographic and other socio-economic changes in many of the key consuming nations are also likely to produce new patterns of demand. Jewellery consistently accounts for around three-quarters of gold demand. In the 12 months to December 2006, this amounted to US$44 billion, making jewellery one of the world's largest categories of consumer goods. In terms of retail value, the USA is the largest market for gold jewellery, whereas India is the largest consumer in volume terms, accounting for 22% of demand in 2006.
Demand in Investment
Gold investment can take many forms, and some investors may choose to combine two or more of these for flexibility. The distinction between buying physical gold and gaining exposure to movements in the gold price is not always clear, especially since it has always been possible to invest in bullion without actually taking physical delivery. The growth in investment demand has been mirrored by corresponding developments in ways to invest and there are now a wide variety of investment products to suit both the private and institutional investor
How to Invest
The price of gold has soared – over the past three months it has risen by around 18 per cent – while global equity markets have fallen.
The price rise has been driven by nervous investors seeking a safe haven for their money and, while the extraordinary returns seen in recent months are unlikely to continue, there is a strong argument that gold will remain a solid investment throughout 2008 – especially if the jitters continue.
There is an increasingly wide range of methods available to investors wanting to buy gold or gain exposure to gold price movements – from gold coins to complex structured financial products
Exchange Traded Funds
These are not technically funds because they follow a single security. ETF gold securities are traded on the London Stock Exchange. They essentially track the gold price and can be traded daily - all you pay is the dealing charge of around 0.4 per cent. They are also regulated financial products. Visit
http://main.jhtml/?xml=/http:www.exchangetradedgold.com http://www.etfsecurities.com/ for more information.
Unit and Investment Trust
These are few and far between, the most popular being BlackRock Merrill Lynch Gold & General, which invests in the shares of gold mining companies as well as other commodity businesses. Advisers reckon general commodity funds could also do the job for private investors as they dabble in gold-related stocks - JPM Natural Resources and ACDS Australia Natural Resources remain popular. Gold mining equities tend to be more volatile than the gold price.
Coins and Small Bars
Bullion coins and small bars offer private investors an attractive way of investing in relatively small amounts of gold and they are exempt from VAT. Bullion coins and small bullion bars contain a minimum of 99.5 per cent fine gold. Gold bars start at around pounds 39 for a 2.5g bar, rising to pounds 11,957 for a 1kg bar. Visit bullion dealers such as Baird & Co (http://www.goldline.co.uk/).
Gold Accounts
Gold bullion banks offer two types of gold account - allocated and unallocated. An allocated account is effectively like keeping gold in a safety deposit box and is the most secure form of investment in physical gold. The gold is stored in a vault owned and managed by a recognised bullion dealer or depository.
With an unallocated account, on the other hand, investors do not have specific bars allotted to them. Traditionally, one advantage of unallocated accounts has been the absence of any storage or insurance charges, because the bank reserves the right to lease the gold out.
