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Gold Investors Make 120 Percent Return in Four Months: 10 Ways to Invest in Gold
By Richard Evans
Telegraph.co.uk
Wednesday, February 25, 2009
A gold investment that private investors can buy on the stock market has gained in value by more than 120 percent in four months.
The Russell Global Gold fund, an "exchange traded fund" or ETF that tracks the performance of gold miners, has produced a total gain of 121pc since October 27 last year.
Meanwhile, a similar investment that tracks the gold price has risen by 33pc since November 21 and by 65pc since this time last year. The gold price broke through the psychologically important $1,000 an ounce level last week.
The Russell Global Gold fund, which tracks the performance of the world's largest gold miners, is the strongest performing equity ETF among those provided by ETF Securities.
"The fund continues to benefit from investors' positive view on the gold price and the leverage to the gold price gold equities provide," said ETF Securities. "Despite recent price increases, gold equities are still trading at a substantial discount to their historical levels relative to the gold price."
Investors can buy ETFs from stockbrokers in exactly the same way as buying a normal share. The stockbroker will charge its usual fee, while the company that manages the ETF will deduct its charges, which may typically be about 0.5pc, from the income produced by the fund.
ETF Securities said its S-Net Global Agri Business and Russell Global Coal fund ETFs had also performed strongly, rising by 29pc and 33pc respectively over the past three months.
Gold is a classic safe-haven asset - hence the pick-up in demand. Here are 10 ways to buy gold.
- Gold Bars
Bars come in metric sizes, and are based directly on that day's gold price, plus a premium for manufacture and marketing. The smaller the bar, the bigger the premium. According to ATS, a one-gram bar would cost £24 but has an immediate underlying resale value of only £16.20, giving a markup of 48pc to the retailer.
The 5g bar costs £100, with an underlying gold value of £81, reducing the markup to 23pc. A 1kg bar costing £17,035 has an underlying value of £16,140, making the markup 5pc.
- Sovereigns
One popular way to own gold is by buying gold coins, with 22-carat gold sovereigns the favourite with British investors. Sovereigns dating from about 1887 and up to 1982 are currently the best bet. Although their face value is only £1, they cost £136 to buy but have an immediate resale value of £118.
By contrast, modern coins dating from 2000 cost more, at around £160, yet their intrinsic value as an investment is the same £118. Coins from before the late Victorian period are even more desirable, but they have much greater rarity value and are therefore more expensive.
- Krugerrands
Another popular option is to buy South African Krugerrands. The smallest is a 0.1oz coin, which might cost £70 and have a resale value of £50. A 1oz coin costs £567 at the time of writing and has a resale value of £512.
- Exchange-traded funds
Gold ETFs 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 0.4pc. They are also regulated financial products. Visit www.exchangetradedgold.com or www.etfsecurities.com for more information.
Gold ETFs enjoyed a record quarterly inflow of 150 tonnes between July and September. The peak in inflows occurred in late September, triggered by the collapse of Lehman Brothers and a fear of further failures in the banking sector. Net inflows surged by an unprecedented 111 tonnes, equivalent to $7bn, during five consecutive trading days.
- Unit trusts and investment trusts
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.
- 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 storage or insurance charges, because the bank reserves the right to lease the gold out.
- Gold shares
You can of course buy individual shares of companies that either trade or mine gold. Evy Hambro, who co-runs the BlackRock Gold & General fund, recently said the discount between the price of gold and that of gold shares was the greatest he had known. Meanwhile, Mark Harris of New Star said gold shares continued to look cheap and remained a decent portfolio diversifier.
London-listed shares include Highland Gold, the London-listed miner partly owned by the Russian billionaire Roman Abramovich, and Peter Hambro Mining, whose share price recently halved.
- Jewellery
While thousands of items of gold jewellery will change hands this Christmas, they are not considered serious investments. Jewellery accounts for more than 60pc of total demand for gold, which was estimated at around 3,547 tonnes in 2007.
India devours 800 tonnes of bullion, more than 30pc of annual global gold mine production, mostly as jewellery. But although over the long term these jewels should hold their value and rise in line with inflation, manufacturing costs and the jewellers' markup mean they would sell for a fraction of the purchase price for the first few years of ownership.
- Gold certificates
Historically, gold certificates were issued by the US Treasury from the Civil War until 1933. Denominated in dollars, the certificates were used as part of the gold standard and could be exchanged for an equal value of gold.
Nowadays, gold certificates offer investors a method of holding gold without taking physical delivery. Issued by individual banks, particularly in countries such as Germany and Switzerland, they confirm an individual's ownership while the bank holds the metal on the client's behalf.
The investor avoids storage and personal security problems, and gains liquidity by being able to sell portions of the holding by simply telephoning the custodian.
The Perth Mint also runs a certificate programme that is guaranteed by the government of Western Australia and is distributed in a number of countries (www.perthmint.com.au/investment_certificate.aspx).
- Structured products
A number of structured products linked to commodities have been launched. They are either baskets of commodities or individual commodities such as sugar, oil, platinum or gold.
Structured products are typically five-year plans that aim to pay you a set return and limit your downside risk. For example, Quantum Asset Management's Protected Gold Portfolio offers a minimum capital return of 100pc at maturity plus 100pc participation in the rise of the underlying assets over the investment period, subject to an overall maximum capital return of 165pc.
Structured products can be complicated so ensure you read the small print, or preferably get expert advice.
SOURCE: http://www.telegraph.co.uk/finance/personalfinance/investing/4804472/Gold-investors-make-120pc-return-in-four-months.html
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