War & Gold

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Gold price sparks a new rush

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

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.

"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.

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.

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.

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."

[bigjarofwasps]

Oil and gold prices jumped on Monday and stock prices fell as the standoff between the United States and Iraq and the impending anniversary of the September 11 attacks spooked investors.

The dollar pushed higher against the euro and yen, extending gains made after Friday’s upbeat U.S. jobs data, but worries over possible U.S. action against Iraq kept the market nervous.

Interest rate futures slid after European Central Bank President Wim Duisenberg said at the weekend that euro zone monetary policy was appropriate for the foreseeable future.

Gold, viewed as a safe haven in times of geopolitical turmoil, topped the $320 an ounce mark for the first time since July with investors anxiously awaiting the anniversary of the attacks on New York and Washington.

“The current environment remains clearly supportive to gold... The potential for major terrorist attacks remains extremely high,” said Kamal Naqvi, metals analyst at the Macquarie Research.

The oil prices rose in Asia for the fourth consecutive session on fears that any escalation in the West Asia violence could disrupt supplies from the region, which accounts for two-thirds of the world crude reserves. Brent crude futures for October delivery were 13 cents higher at $28.42 a barrel.

Nervousness over a possible U.S. attack on Iraq also helped push European stocks lower, though dealers also blamed profit-taking after sharp price rises on Friday.

“The move on Friday was very strong, largely due to short-covering, and we are seeing some profit-taking today, though the main worry of the market remains Iraq,” said Thierry Lacraz, a European strategist at Geneva-based bank Pictet & Cie.

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There was no change in the trading pattern on the bullion market today as gold notched up further ground on sustained buying and silver moved up on the local support.

Marketmen said the gold prices continued to gain in day-to-day buying by retail customers and stockists influenced by a firm trend in the overseas markets.

The yellow metal in other Asian markets hovered around $ 321 an ounce from previous level of $ 318.

They said worries over the potential repeat of any terrorist attack together with continued attempts by the USA to draw up support for attacking Iraq lent gold a good bullish tone.

Standard gold and ornaments gained further by Rs.20 each at Rs 5,300 and Rs 5,150 per 10 gram. Sovereign also jumped up by Rs 75 at Rs 4,150 per piece of eight gram.

While silver ready rose by Rs 45 at Rs 7,770 per kilo and weekly-based delivery by Rs 40 at Rs 7,780 per kilo, silver coins gathered fresh support from the local parties and registered a gain of Rs 100 at Rs 11,600/11,700 per 100 pieces.

The following were today’s quotations: Silver ready 7,770 and delivery 7,780. Standard gold 5.300, ornaments 5,150 and sovereign 4,150.

[bigjarofwasps]

CHINA HAS JUST ‘TRIGGERED’ GOLD INTO A FULL BULL MARKET

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