A golden opportunity but don't rush in without thinking
Last Updated: 12:22AM BST 18 Oct 2007
With the world's favourite yellow metal at record highs, investors must take care, says Nina Montagu-Smith
The price of gold recently reached a 28-year high, hitting $739 an ounce, its highest level since February 1980, before settling back to around $730 an ounce this week.
Stock market volatility and a renewed demand for gold from developing countries, which are increasingly cash-rich, are the main drivers of this rise, and look set to continue to support it. So should investors be getting in on the gold rush too?
Mark Dampier, investment adviser at the independent financial adviser Hargreaves Lansdown, is a gold fan. He said: "I am keen on gold at the moment. It seems the world is a bit more of an uncertain place right now and gold is something that is seen to store value."
Philippa Gee, investment specialist at the independent financial adviser Torquil Clark, said: "There are occasions in the life of a stock market cycle when investors prefer gold to most other asset classes and this is one of those times."
However, Ms Gee counselled against any dramatic switching of assets into gold, saying that most investors should not allocate more than 9 per cent of a portfolio to gold. "The attractiveness of gold as an asset can change quickly and most investors are unable to react at the same pace," she said.
Brian Dennehy, of the independent financial adviser Dennehy Weller, was even more cautious, suggesting a maximum of 5 per cent of an investor's portfolio should be given over to gold.
He said: "Gold is a fringe asset that has a record of destroying capital, which is why it has only just reached a level last achieved 28 years ago. By contrast, the FTSE All Share index is up in excess of 1,000 per cent since 1980, with dividends on top. And if history is any guide, the stock market still looks decent value."
Ms Gee said: "Some people will assume that because natural resources-related commodities have been delivering strong returns of late, this is the place to invest all their money, but that is the route to madness.
"If you want the commodity to be anything other than fool's gold, you need to keep your allocation low and diversify as much as possible."
There are several ways to invest in gold. You can buy physical gold either directly by buying bullion – not an easy option for the average private investor – or indirectly through exchange-traded funds, known as ETFs. Exchange-traded funds are investment funds which can be traded on the stock market in the same way as shares or investment trusts, but are open-ended, like unit trusts. This means there is an unlimited number of shares, which are issued on demand.
Exchange-traded funds track indices of shares, giving you exposure to the exact make-up of a particular index, or commodities, including gold. As with company shares, you buy ETF shares via a stockbroker. They can be bought and sold at any time during trading hours, giving you immediate exposure to the commodity or share index of your choice.
Exchange-traded funds specialising in gold are currently offered by ETF Securities, which runs exchange-traded funds in gold, platinum, commodities, and precious metals, and as Barclays Global Investors iShares.
Alternatively, it is possible to buy shares in gold mining companies through pooled funds such as investment trusts, unit trusts and open-ended investment companies (Oeics). The advantage of choosing a pooled fund is that you get the services of a professional fund manager who will select stocks on your behalf, and your investment benefits from greater diversification.
Mr Dampier said: "You can buy physical gold, but if the gold price goes up, then so will the gold mining stocks."
He chose the Merrill Lynch Gold & General fund which has benefited from excellent performance, adding: "Had the gold price kept up with this fund, it would now cost $8,000 per ounce." (Comment: Note the disconnection.)
Mr Dennehy, the reluctant gold investor, also selected this fund for fans of gold, saying: "If you insist on speculating in gold, put yourself in the hands of the experienced elves running Merrill Lynch Gold and General."
This Merrill Lynch fund, which has more than trebled investors' money after charges are deducted in the past five years, has an initial charge of 5 per cent and an annual management charge of 1.75 per cent .
In order to spread risk, both Mr Dennehy and Ms Gee said investors should consider a more diversified commodities or natural resources fund instead of restricting themselves just to gold.
Although past performance should not be used as an indicator for the future, these funds can produce excellent returns. Merrill Lynch World Mining Investment Trust, for instance, has turned a £1,000 investment five years ago into £6,235 now. JP Morgan Natural Resources has turned £1,000 into £5,584 over five years, including the effects of charges.
Mr Dennehy said: "Consider a diversified commodity fund such as JP Morgan Fleming Natural Resources, or, my preference, a more thoughtful fund such as M&G Global Basics. The latter can have an exposure of up to 50 per cent in commodities, but at the moment has nearer 30 per cent , because commodity companies as a whole are just not that attractive – private investors should take heed of this strong message from such a hugely successful fund."
JP Morgan Fleming Natural Resources has an initial charge of 5.5 per cent and an annual charge of 1.5 per cent . M&G Global Basics levies a 4 per cent initial fee and a 1.5 per cent annual management fee.
Contacts
For performance and prices of pooled funds and exchange-traded funds (ETFs), see http://www.trustnet.co.uk/ or http://www.morningstar.com/
For information about investing in physical gold, see the World Gold Council: http://www.gold.org/
To find a local independent financial adviser, see IFA Promotion: http://www.unbiased.co.uk/
Last Updated: 12:22AM BST 18 Oct 2007
With the world's favourite yellow metal at record highs, investors must take care, says Nina Montagu-Smith
The price of gold recently reached a 28-year high, hitting $739 an ounce, its highest level since February 1980, before settling back to around $730 an ounce this week.
Stock market volatility and a renewed demand for gold from developing countries, which are increasingly cash-rich, are the main drivers of this rise, and look set to continue to support it. So should investors be getting in on the gold rush too?
Mark Dampier, investment adviser at the independent financial adviser Hargreaves Lansdown, is a gold fan. He said: "I am keen on gold at the moment. It seems the world is a bit more of an uncertain place right now and gold is something that is seen to store value."
Philippa Gee, investment specialist at the independent financial adviser Torquil Clark, said: "There are occasions in the life of a stock market cycle when investors prefer gold to most other asset classes and this is one of those times."
However, Ms Gee counselled against any dramatic switching of assets into gold, saying that most investors should not allocate more than 9 per cent of a portfolio to gold. "The attractiveness of gold as an asset can change quickly and most investors are unable to react at the same pace," she said.
Brian Dennehy, of the independent financial adviser Dennehy Weller, was even more cautious, suggesting a maximum of 5 per cent of an investor's portfolio should be given over to gold.
He said: "Gold is a fringe asset that has a record of destroying capital, which is why it has only just reached a level last achieved 28 years ago. By contrast, the FTSE All Share index is up in excess of 1,000 per cent since 1980, with dividends on top. And if history is any guide, the stock market still looks decent value."
Ms Gee said: "Some people will assume that because natural resources-related commodities have been delivering strong returns of late, this is the place to invest all their money, but that is the route to madness.
"If you want the commodity to be anything other than fool's gold, you need to keep your allocation low and diversify as much as possible."
There are several ways to invest in gold. You can buy physical gold either directly by buying bullion – not an easy option for the average private investor – or indirectly through exchange-traded funds, known as ETFs. Exchange-traded funds are investment funds which can be traded on the stock market in the same way as shares or investment trusts, but are open-ended, like unit trusts. This means there is an unlimited number of shares, which are issued on demand.
Exchange-traded funds track indices of shares, giving you exposure to the exact make-up of a particular index, or commodities, including gold. As with company shares, you buy ETF shares via a stockbroker. They can be bought and sold at any time during trading hours, giving you immediate exposure to the commodity or share index of your choice.
Exchange-traded funds specialising in gold are currently offered by ETF Securities, which runs exchange-traded funds in gold, platinum, commodities, and precious metals, and as Barclays Global Investors iShares.
Alternatively, it is possible to buy shares in gold mining companies through pooled funds such as investment trusts, unit trusts and open-ended investment companies (Oeics). The advantage of choosing a pooled fund is that you get the services of a professional fund manager who will select stocks on your behalf, and your investment benefits from greater diversification.
Mr Dampier said: "You can buy physical gold, but if the gold price goes up, then so will the gold mining stocks."
He chose the Merrill Lynch Gold & General fund which has benefited from excellent performance, adding: "Had the gold price kept up with this fund, it would now cost $8,000 per ounce." (Comment: Note the disconnection.)
Mr Dennehy, the reluctant gold investor, also selected this fund for fans of gold, saying: "If you insist on speculating in gold, put yourself in the hands of the experienced elves running Merrill Lynch Gold and General."
This Merrill Lynch fund, which has more than trebled investors' money after charges are deducted in the past five years, has an initial charge of 5 per cent and an annual management charge of 1.75 per cent .
In order to spread risk, both Mr Dennehy and Ms Gee said investors should consider a more diversified commodities or natural resources fund instead of restricting themselves just to gold.
Although past performance should not be used as an indicator for the future, these funds can produce excellent returns. Merrill Lynch World Mining Investment Trust, for instance, has turned a £1,000 investment five years ago into £6,235 now. JP Morgan Natural Resources has turned £1,000 into £5,584 over five years, including the effects of charges.
Mr Dennehy said: "Consider a diversified commodity fund such as JP Morgan Fleming Natural Resources, or, my preference, a more thoughtful fund such as M&G Global Basics. The latter can have an exposure of up to 50 per cent in commodities, but at the moment has nearer 30 per cent , because commodity companies as a whole are just not that attractive – private investors should take heed of this strong message from such a hugely successful fund."
JP Morgan Fleming Natural Resources has an initial charge of 5.5 per cent and an annual charge of 1.5 per cent . M&G Global Basics levies a 4 per cent initial fee and a 1.5 per cent annual management fee.
Contacts
For performance and prices of pooled funds and exchange-traded funds (ETFs), see http://www.trustnet.co.uk/ or http://www.morningstar.com/
For information about investing in physical gold, see the World Gold Council: http://www.gold.org/
To find a local independent financial adviser, see IFA Promotion: http://www.unbiased.co.uk/
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