By Ellen Kelleher
Published: May 28 2010 15:14 | Last updated: May 28 2010 15:14
The gold price tends to rise or fall depending on the state of economic conditions. When equity markets weaken and interest rates drop, the metal’s cost tends to climb. Conversely, its price usually falls if the performance of markets improves.
Gold remains a controversial financial asset. To its enthusiasts, gold is the only true store of value and the asset that comes into its own when all others are crumbling. But even investors who do not believe that paper currencies are doomed, see physical gold as a useful way to diversify their investment portfolios and a “safe-haven” investment when markets turn volatile.
There are regulations covering buying gold. If bought for investment purposes, gold doesn’t bear VAT. But dealers are duty bound to report to the Revenue an initial purchase of more than £5,000, or an aggregate purchase of more than £10,000 in any 12-month period.
With gold now trading above $1,150 per troy ounce, however, strategists are forecasting that the metal will fall in value in the short-to-medium term. So, these days, a number of investors are shorting gold - or betting that its price will fall.
If you are keen to gain exposure to the metal, here are the options:
1) Unallocated gold: These are paper trades. You do not own a specific bar of gold, but your investment is backed by the general stock of a bullion dealer.
2) Allocated gold: Here, you can elect one of three options. The first is to buy bars from a dealing institution, which is responsible for storing them and charges a management fee. The second is to buy bullion coins, such as Krugerrands, American Eagles, Canadian Maple Leafs, and Australian Nuggets.
Dealers sell bullion coins at a slight premium to the price of their physical gold content, usually one ounce. The premium, which ostensibly covers the cost of fabrication, in fact represents a margin for the dealer. The premium is lower the more coins you buy at any one time, and lowest for the most popular coins. Krugerrands tend to have the lowest premium.
If you keep your coins at home, you need to keep them secure. Safes are rated according to the amount of value likely to be stored in them, A small safe rated to store, say, £50,000 of valuables for insurance purposes might cost £700 to buy and install, but having property in a safe like this should leave your contents insurance premium unaffected.
A safety deposit box is another option. Selfridges has a large central London facility where boxes cost from £110 a year up, depending on size.
Bullion coin dealers offering a service to small investors tend to be clustered in London and include ATS Bullion, Baird & Co, and Gold Investments.
3) Gold bullion certificates: These are slightly more esoteric and are both tradable and exchangeable into the underlying gold, delivered to a country of your choice.
Perth Mint offers certificates backed by a guarantee from the Government of Western Australia. The minimum investment is $10,000. There is a commission of 2 per cent buying and 1 per cent selling.
4) Gold exchange-traded funds: These open-ended vehicles track the metal’s price and can be bought or sold like equities. They are listed on several exchanges and in a number of currencies.
Dealing suffers normal brokerage commission but, as with other ETFs, no stamp duty.
5) Gold options: Options provide the right but not the obligation to buy or sell an agreed amount of the metal at a predetermined price at a specified time. If you buy a call option, you are betting that the gold price will jump. If you purchase a put option, meanwhile, you expect it will fall.
6) Gold futures: Taking out a gold futures contract requires more commitment as you must buy or sell a set amount of gold at specific price and time.
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From Financial Times published on May 28, 2010
