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Thursday, 13 February, 2003, 09:26 GMT
Gold price sparks a new rush
Gold bullion bars
Gold has been forgotten as an investment in the UK

Gold is coming back into fashion, not as jewellery but as bars and sovereigns.

Nobody ever hears about the gold market out on the street until war breaks out

Jeremy Kyd, Trading manager, Baird & Co
More and more people, wearied by plunging share prices, poor returns on savings and a possible crash in the housing market, are looking at gold as an alternative investment.

Fears about war with Iraq have helped push up the price to about $360 an ounce and bounced the precious metal back into the headlines.

And that has woken up ordinary investors in the UK who had forgotten about gold.

Selling krugerrands

"Nobody ever hears about the gold market out on the street until war breaks out," says Jeremy Kyd, trading manager at the bullion merchants Baird & Co.

Wedding rings
Jewellery carries a premium
"It's supposed to be a shiny thing, it's supposed to have this flight to quality, people see it as a safe haven, it used to back currencies; and gold is still there."

Mr Kyd says that since the beginning of this year the company has seen a 20% increase in general enquiries about buying the precious metal.

The high price has also encouraged selling: "We have seen quite a few people coming out of the woodwork selling the krugerrands they got in the sixties."

Piling in

Baird's customers are generally companies investing large amounts of money in gold bars.

But individuals can buy gold coins ranging in price from 24 to several hundred pounds.

If the gold price rises by 10%, gold shares rise by 30% to 50%

Richard Davis, Merrill Lynch fund manager
Anyone wanting to buy gold bars has to be an account holder with a minimum of $5,000 to invest.

"A lot of people are piling their money into gold at the moment," says Justin Modray, investment manager at the independent financial advisers RJ Temple.

For the first time that he can remember, clients have been coming for financial advice and mentioning gold as a possible investment.

"It tends to be a relatively good bet at the moment because gold is a good hedge against stock markets, and cash is paying not particularly good returns at the moment."

He says that gold sovereigns are the main way of investing.

Jewellery is not such a good option because you pay a premium for the workmanship.

Gold bars are the next step up, but an investor will also have to pay 100 or more a year to keep them in storage.

Beating the stock market

There is another way to invest in gold without buying the precious metal itself - through a unit trust.

The Merrill Lynch Gold and General Trust rose 53% last year while world stock markets were falling.

The fund invests in gold mining company shares and has a small holding in platinum and silver equities.

Weighing gold bars
Small investors might be weighing in too late
Richard Davis, who manages the fund, says interest from investors has increased over the last year and more particularly in the last few weeks.

The fund invests in gold shares rather than the metal itself because the potential gains are greater.

"When the gold price goes up the shares go up. If the gold price rises by 10%, gold shares rise by 30% to 50%," says Mr Davis.

"But it's the same on the downside. If the gold price falls 10%, the shares will fall by 30% to 50%."

Selling off gold reserves

It is not just the fear of war with Iraq that has pushed gold higher.

What it really needs is for one of the major High Street banks to re-adopt sales of gold over the counter

Kevin Crisp, Precious metal strategist
The price peaked at $850 an ounce in January 1980 when the oil price was very strong and Middle East producers invested in gold.

But the price fell back and was further hit in the 1990s when many of the world's central banks were selling off their gold reserves.

An agreement in 1999 to limit the amount of gold they sold onto the markets helped the metal to regain its lustre.

But until now there has not been any demand from individual investors.

Getting caught out

"There's a whole lot of people paying interest to gold: it's like a market waiting to be tapped by somebody.

"What it really needs is for one of the major High Street banks to re-adopt sales of gold over the counter," says Kevin Crisp, precious metal strategist at Dresdner Kleinwort Wasserstein.

In Germany it is possible to buy small gold bars and coins and open gold accounts in bank branches.

But anyone thinking of moving their money into the precious metal should beware.

"Gold is not a panacea. However, as part of a portfolio it can play a role," says Mr Crisp.

And Mr Modray warns that, all too often, investors can get caught out by the markets.

"The majority of people tend to chase performance when it comes to investment."

See also:

11 Feb 03 | Business
07 Feb 03 | Business
31 Jan 03 | Business
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