market - gold
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8/8/2019 Market - Gold
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den
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.
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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
m