It is no coincidence that gold prices have shot up since the
financial crisis broke in 2008. Andrew Merricks, Head of Investments at
Consultants discusses whether it is too late to buy gold,
and the reasons why this asset can be expected to appreciate.
You can't fail to have noticed the adverts offering to buy your
unwanted gold. You see them while you're waiting at the traffic
lights, from the train window, as you are walking through the
shopping mall; and when you turn the radio on to escape from it
all, your ears are ambushed as the local jeweller is imploring you
to go to him with those old rings that the Ex left you. Usually
this level of marketing is a flashing red warning light that a
market is severely "frothy". Remember the programmes
telling us how to become dot.com millionaires just before the
technology crash, and property speculators at home and abroad weeks
before the credit crunch came home to roost?
So is it too late to buy gold now? We're not so sure.
It is no coincidence that the gold price has shot up since the
financial crisis broke in 2008. Gold is a "real" asset,
and there is a finite amount of it. You can print money endlessly.
You can't dive down 3 miles below the Earth's crust very
easily to dig up more gold. Therefore it fits into that supply and
demand category which quite simply states that if more people want
to buy than sell the asset, the price should go up. In USD terms,
the current gold price ($1550) is at record levels. If you
inflation-link it from the last time it was this high (around
1979-80) then you'd get nearer $2000 an ounce.
You could argue that gold as more akin to a currency than other
commodities, so at a time when most other currencies are battling
it out for the "least worst" title, gold can be expected
to appreciate. If you believe that the World's debt woes are
soon to become a thing of the past, then don't touch gold. If
you believe, as we do, that the Greek/Spanish/Irish/Eurozone/US
problems are going to take a while to sort out, then some exposure
to gold and precious metals makes sense if you have none so
So how do you buy and hold gold? It used to be the case that
you'd need to buy a gold bar or some sovereigns and place them
in a vault at your bank. This was costly, unwieldy, and something
that very few people could be bothered to do. Nowadays though,
there are Exchange Traded Commodities (ETCs) that allow you to own
and hold physical gold in certificated form (unfortunately you will
not be able to touch and feel it in the same way as the real
thing). These ETCs are traded on the stock market in the same way
that you would a share, and are thus very liquid. As with anything
other than cash, there is risk involved, and the price can fall as
well as rise. But if you do not own any gold (or silver, platinum
or palladium for that matter) in your portfolio, it may be worth
considering some, not least for diversification purposes. Discuss
it with a professional adviser first though.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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