How to Invest in Gold – Alternative Investment Series

Since April, gold prices have continued their meteoric rise, with many institutional investors seeing gold as portfolio insurance that will provide growth as the value of other assets in their portfolios fall. Some Family Offices are reported to hold up to 15% of their portfolios in the precious metal, although many are now also taking profits to invest elsewhere in other tangible alternative investments like farmland or forestry.

Why invest in gold?

There are two main reasons for investing in gold; firstly, as already mentioned in this article, gold is traditionally viewed as a safe haven when equity markets are volatile and is therefore perceived to be a good capital preservation tool. Secondly, gold investments are seen by many to be a hedge against the US Dollar. Many investors believe that US economic dominance will wane and the value of the dollar falls, so then the price of gold will rise.

As gold does well when inflation is high and markets are volatile, it is no surprise that prices have rocketed in recent times as markets experienced the worst falls on record and central banks pumped new money into economies creating inflation.

Gold is also a relatively liquid investment asset, allowing investors to trade in and out with relative ease. Also, supplies of gold are limited and production of the precious metal peaked back in 2003, since then production has fallen yet demand from investors and demand for gold from wealthier classes in developing nations such as China and India has increased year on year.

Some analysts have predicted that gold will continue on rising and pass $2,000 per ounce, other have even gone so far as to quote and eye-watering $5,000 per troy ounce. Another set of thinkers believe gold to be overvalued and prices will fall back as confidence returns to traditional markets and investors sell their gold to repurchase equities.

Long-term returns from gold investments

Over the longer term, the investment performance of gold has been outstanding, outperforming many other alternative investments.

Labour Chancellor Gordon Brown sold off around 395 tonnes of the UK’s gold in a series of auctions between 1999 and 2002. This amounted to over half of the United Kingdom’s gold. The $3.8 billion raised from the sale would now be worth over $25 billion if it were kept in gold, costing the UK economy over $20 billion, or about $2 billion per years since.

Gold Investment Funds and Shares

Investing in traditional equities can be a risky business, especially when the investment is speculative as is the case with gold mining companies as their result reply on finding more gold reserves to harvest. Shares in gold mining companies have not fared as well as the price of physical gold.

One particularly popular gold investment fund is the Blackrock Gold & General fund, previously referred to as the Merrill Lynch Gold & General. Graham Birch is the Fund Manager and has over 20 years of experience. The fund mainly invests in gold mining companies.

Ian Henderson is another credible gold investment fund manager. He manages the JP Morgan Natural Resources fund which has broader investment remit, investing in global companies involved in the production and marketing of commodities and is heavily weighted toward gold investments.

Another choice is the First State Global Resources HULT PRIVATE CAPITAL Fund which buys shares in companies connected to the global natural resources and energy sectors. This fund has a large proportion of assets under management invested in precious metals, including gold.

Blackrock have two prominent choice for the gold investor; The Blackrock World Mining investment which invests in a range of precious metal commodities, and the BlackRock Commodities Income investment trust which again has a large percentage of its investments held in gold.

Physical Gold

Investors may choose to take actual ownership of physical gold in the form of investment grade bullion bars or coin.

There are a number of advantage to holding physical gold as some gold coins are still legal tender and therefore do not attract capital gains tax.

There are a number of gold brokers that are set up specifically to deal with investors and will arrange the sale and purchase of physical gold on behalf of the investor. Some will also offer secure storage facilities for investors not keen on keeping their gold at home.

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