Guide to gold

Gold Investment

400 oz LBMA approved good delivery gold bar and assorted gold coins

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Gold Investment

If you're still thinking about Gold Investment, and rationalising what can be a difficult decision we recommend reading this link before you invest in gold.

Review of the Gold Investment Market

Gold investment worldwide has grown dramatically in the last five years, but compared with the total stock of financial assets, gold bullion investment is still just a tiny proportion.

Several factors are now stimulating gold investment by new pension fund money - as well as by private investors.

Demand from New Gold Investment Markets

Sales of gold jewelry across Asia are surging as the local economies boom and private investment grows. China's gold investment demand grew by 20% in 2007, while Indian consumers bought a record 900 tonnes - well over one-fifth of the total world market.

Gold buyers in Asia tend to think of their jewelry as a form of gold investment. Prevented from owning gold bullion until very recently, they invest in gold to protect their savings from inflation and currency shocks.

That's why the most popular form of gold jewelry in Asia - heavy chains and bracelets - is known as "investment jewelry" in the gold industry.

Mining Output Fails to Meet Gold Investment Demand

Gold mining companies worldwide have failed to meet the growing demand from gold jewelry and gold investment buyers, pushing the gold price steadily higher.

The former world's No.1 gold mining nation, South Africa, has seen its annual gold output halve since 1998, and new operations in China and Russia - though growing - have failed to pick up the slack.

According to consultants "Virtual Metals" total world mining output has fallen by 4% since 2003. Their gold investment analysts don't forecast an early return to growing output.

Gold Investment vs. the Falling Dollar

As the US Dollar has slumped gold investment has outstripped the gains in all major world currencies.

In the five years to 2008 buying Euros to defend against the Dollar's decline has returned 47%. Gold investment, on the other hand, has returned 131%.

British, Australian, South African and Indian citizens undertaking gold investments in 2007 all enjoyed the gold price reaching record new all-time highs.

When Inflation Looms, Gold Investment Shines

The surge in crude oil prices has closely matched the gains in gold prices since 2003, but many people now thinking about gold investment will also want to consider the surge in world food prices, the boom in base metals such as copper, and the current all-time highs in the cost of shipping.

Rising demand for better housing and durable goods from Asian consumers is certainly a factor. But many gold investment analysts also point to the huge growth in credit and debt in the West.

The money supply in the United States has doubled in the last seven years. In Europe, growth in the money supply hit a near-30 year record in late 2007, increasing the appeal of gold investment as the value of each Euro in circulation threatens to shrink under the weight of new notes and electronic account balances.

Gold Investment: The Antidote to Complex Debt Defaults

"Financial innovation in the last few years has been extremely strong and powerful," as Gilles Gilcenstein, head of asset management at BNP Paribas, put it in late 2006. We've now seen this bubble in complex and novel investments bite back.

The global credit crunch first bit when the alphabet soup of MBS, CDOs, CDS and ABCP turned sour as the US mortgage market turned down.

These instruments thrive in the opaque, off-balance-sheet environment of modern financial engineering.

But transparency is important. The modern world has audited accounts, and open exchanges, and 'public' companies for a good reason: because previous generations understood that when investment stops being open and transparent, and reverts to cosy secret deals, complex contracts, and big executive bonuses, then it is general investors who get cheated. Transparency helps stop these problems developing.

In stark contrast to the burgeoning complexity of modern securities markets gold investment remains uniquely simple, and - dealt the right way - uniquely transparent.

A solid gold investment sets you free from the risk of credit default or banking failures.

Click here for essential information if you are considering or ready to invest in gold.

Gold investment FAQs

Gold investing can make a good idea for spreading risk across a balanced portfolio. That's because the value of gold bullion has tended to increase when other investment assets fall over long periods of time.

Historical trends show that investing in gold has made a good if imperfect hedge against poor performance from currencies, shares, bonds and real estate. The idea is to reduce overall losses by using gold to diversify the portfolio's investments.

When investing in gold as a way to spread risk, it's a good idea to think about costs, security and simplicity. For more information on gold investment, read the dedicated guide above.

Choosing the best gold investment will depend on the buyer’s resources and aims. A few gold coins or a very small bar hidden at home needn't cost much. But compared to serious investment gold, they are very expensive by weight, reducing gains or worsening losses if prices fall. Proper insurance really is vital.

Owning gold within a Good Delivery bar, cast by an LBMA-approved refiner and insured inside market-recognized vaults, makes a safer and more cost-effective way of investing in gold. Because the metal's quality and authenticity are warranted, the price spreads (the difference between buying and selling prices) are very tight, and commission fees are lower than for all other bullion products.

For more information on gold investment, read our dedicated guide above.

The best way to invest in gold bullion will depend on the buyer’s resources, as well as their intentions. For example, gold coins and small gold bars are available, with bars ranging in size from 1 gram upwards. But these cost very much more by weight than larger bullion products.

Owning gold within Good Delivery bars, cast by LBMA-approved refiners and weighing around 400 Troy ounces (12.5 kilograms), offers the best way to invest in gold if the buyer wants value, security and the ability to sell quickly for full value.

Stored and insured in specialist vaults, this large-bar gold comes with a warranty of quality and authenticity. It enjoys the tightest trading price spread – the difference between buying and selling prices – and commission fees are lower than any other bullion product.

For more information on gold investment, read our dedicated guide above.

Gold bullion is viewed by many investors as a good way of hedging against risk as part of a balanced portfolio. This is because the value of gold has historically increased as cash, currencies, stocks and bonds lost value, helping reduce overall losses when other assets in an investment portfolio dip.

There are many different ways to invest in gold bullion. Good Delivery bars offer the most cost-effective product, because the deep, global market for these large units makes the price spread (the difference between buying and selling prices) tighter than for any other form of bullion.

For more information on gold investment, read our dedicated guide above.

Some analysts and advisors think investing in gold is a bad idea because it doesn't pay any income or interest. But gold bullion is more widely seen as a good alternative investment, hedging against risk, as part of a balanced portfolio.

Historically, the value of gold has repeatedly increased when domestic currencies, stocks and bonds have performed badly over extended periods of time. This 'see-saw' performance isn't guaranteed however, and gold can fall alongside stocks and bonds during short-term crises.

Over longer periods, gold prices show a similar volatility to the stock market, and most investors using gold to balance risk from other portfolio assets should expect gold to underperform when the economy is growing and wider investment sentiment is positive.

For more information on gold investment, read our dedicated guide above.

Please Note: This analysis is published to inform your thinking, not lead it. Previous price trends are no guarantee of future performance. Before investing in any asset, you should seek financial advice if unsure about its suitability to your personal circumstances.

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