You can’t fail to have noticed the adverts offering to buy your unwanted gold. You see them while you’re waiting at the traffic lights, from the train window, as you are walking through the shopping mall; and when you turn the radio on to escape from it all, your ears are ambushed as the local jeweller is imploring you to go to him with those old rings that the Ex left you. Usually this level of marketing is a flashing red warning light that a market is severely “frothy”. Remember the programmes telling us how to become dot.com millionaires just before the technology crash, and property speculators at home and abroad weeks before the credit crunch came home to roost?
So is it too late to buy gold now? We’re not so sure.
It is no coincidence that the gold price has shot up since the financial crisis broke in 2008. Gold is a “real” asset, and there is a finite amount of it. You can print money endlessly. You can’t dive down 3 miles below the Earth’s crust very easily to dig up more gold. Therefore it fits into that supply and demand category which quite simply states that if more people want to buy than sell the asset, the price should go up. In USD terms, the current gold price ($1550) is at record levels. If you inflation-link it from the last time it was this high (around 1979-80) then you’d get nearer $2000 an ounce.
You could argue that gold as more akin to a currency than other commodities, so at a time when most other currencies are battling it out for the “least worst” title, gold can be expected to appreciate. If you believe that the World’s debt woes are soon to become a thing of the past, then don’t touch gold. If you believe, as we do, that the Greek/Spanish/Irish/Eurozone/US problems are going to take a while to sort out, then some exposure to gold and precious metals makes sense if you have none so far.
So how do you buy and hold gold? It used to be the case that you’d need to buy a gold bar or some sovereigns and place them in a vault at your bank. This was costly, unwieldy, and something that very few people could be bothered to do. Nowadays though, there are Exchange Traded Commodities (ETCs) that allow you to own and hold physical gold in certificated form (unfortunately you will not be able to touch and feel it in the same way as the real thing). These ETCs are traded on the stock market in the same way that you would a share, and are thus very liquid. As with anything other than cash, there is risk involved, and the price can fall as well as rise. But if you do not own any gold (or silver, platinum or palladium for that matter) in your portfolio, it may be worth considering some, not least for diversification purposes. Discuss it with a professional adviser first though.