In the environment of global economic and financial crisis, heavyweight investors in Western countries turn to the so-called safe-haven vehicles, which for instance include real property or precious metals, gold in particular.
The average price of the yellow metal across world exchanges has already reached $1,000 per ounce. This is the highest level in the past seven months.
A Merrill Lynch forecast says the gold ounce will soon break the $1,100 record fixed in March 2008 and by this June will hit the $1,150 mark.
The majority of market analysts expect that this precious metal will continue to grow in price, but not in that rushing way. They predict in particular that the average price of one troy ounce of gold will cost about $910 in 2009.
At the same time, some experts believe that in mid-term the average price for gold may come close to $2,000 per ounce.
In any way, as experts stress it, on this background the figure dating back to April 2001, $260 per ounce, seems to sink in the mists of time.
Market analysts delineate several ways to invest into gold: buying bullions and coins, investing into exchange traded funds and gold mines.
Undoubtedly, the shrewdest investment is to buy gold bars. Very often customers buy one kilo bars. In Brussels, such bars are sold at about €25,000. However, there other “formats” – from 12 kilos down to 500, 250, 100, 50, 20 and 10 grams.
The difference in selling and purchasing prices is around one percent, but you also have to take into account the one-percent VAT and the seller’s commission.
The gold content in a bar which may be read on its marking is 999 or 1000. Nevertheless, Test-Ashats, a Belgian investment company, warns that some gold bars may contain lead. This is why experts advise to buy gold bars only from well-known merchants specialized in this kind of trade.
Purchasing coins is another lucrative way of investing you capital.
South-African krugerrands made of one troy ounce of gold, napoleons d'or issued by Bonaparte as a 20-frank coin (containing 5.80644 grams of fine gold) and Mexican 50-peso coins (37.5 grams of gold) enjoy a great sale in Belgium.
The price range for these coins varies from €75 to ?900 per piece and mainly depends on their fine gold content, numismatic value and appearance. The coins which have never been in circulation and preserved their antique patina are among best valued.
The price difference may reach 25%. At that, you have to add one percent of VAT, your merchant’s commission and expenses for the valuer's statement.
Still, there is another type of gold investment which is buying the so-called tracker funds. They give an opportunity to invest in certain metals or their combinations leaving free way to private investors and allowing them to engage in gold transactions without purchasing physical gold.
New-York-based SPDR Gold Trust is the world’s largest fund offering gold ETFs (Exchange Traded Funds).
Gold ETFs are indexed according to exchange rates. Tracker funds invest into gold kept in the vaults of major London banks. The current amount of gold reserves wielded by ETF funds comes up to 70 tons of gold.
“Gold” shares of such funds are traded by several ETF institutions as is done for instance by Société Générale - Lyxor 100% Quanto Or, whose bank liabilities exceed €200 million. This type of gold ETF was launched in October 2008 and its kick-off quotation was ?80.55.
Several days later it went down to €76 due to decreased price for gold, but then resumed its growth reaching ?96.40 by this February 17. The only difference towards gold price is the 0.3% management fee.
The “gold paper’s” advantage is that it relieves its investor of really buying and owning the yellow metal. In addition, it is very liquid.
Finally, the fourth method of gold investment is related to gold mines. Owners of gold ETFs have an opportunity to invest into the yellow metal in a roundabout way by purchasing shares in companies operating gold mines.
The preeminence of this investment method lies with the so-called “leverage effect.” If, for instance, the cost of one gold ounce is $800 while it is quoted at $900 then you get $100 as your income. However, the leverage effect may also be precisely the opposite.
Many gold-mining companies are listed on exchange as for example Harmony, Gold Fields and AngloGold are listed on Euronext.
On their part, experts advise to medium investors to put their money right into the shares of investment funds of companies owning gold mines.
For instance, the shares of BGF Wordl Gold, SGAM Eq.Gold Mines and Bearbull Share Gold surged in price 30%. But as the Belgian press warns, you should also keep it in mind that these shares are valued in U.S. dollars.
Alex Shishlo, Rough&Polished European Bureau Editor in Brussels
