Investors In New Gold Rush

October 5th, 2008 by admin | Filed under Global Credit Crisis, Gold, Recession, Saving, The Markets.

Investors have taken a shine to precious metals as alternative investments as confidence wanes in financial markets.

The few gold coin ands bullion producers are working flat out to keep up with demand as savers switch their cash from deposit accounts to gold.

South African Krugerands are trading at about £550 each and the producers have upped production to seven day a week.
The US Mint has stopped selling 24-carat American Buffalo coins, selling for $780, and is limiting availability of the 22-carat American Eagle coin.
The Austrian Mint, that produces a Vienna Philharmonic orchestra gold coin is also running flat out to meet demand

Investors are also buying up other precious metals – with silver, platinum and palladium prices all rising.

Investing in gold

Gold bars are a little out of the pay scale of most small investors, for whom gold coins and quality gold jewellery are good options.

Instead of actually buying gold, some small investors are putting their cash in to Exchange Traded Gold Funds (ETFs). This is much like stashing cash in a unit trust or property fund – you buy shares in a fund that holds gold bullion in a London vault.

Shares in the fund are traded on stock markets. Each share is for about a tenth of an ounce of gold worth about £45.

Also have a look at a Financial Times recommended company called Bullion Vault on the web.

Investors can buy gold on line 24/7 and pay a small amount for security and storage in a bank vault.

Storing gold

Rather than keeping a treasure trove under your mattress, most investors store their gold in a bank vault.

This does have a catch. When you deposit gold in a bank, the value is transferred to the bank’s balance sheet and you are a creditor in the same amount. This puts gold investors in the same position as cash investors for compensation if the bank collapses.

The Financial Services Compensation Scheme only protects the first £35,000 each investor has on deposit with a bank.

The moral here is don’t keep your cash and gold in a single bank – or banks trading in the same group under the same banking licence.

Other ways of investing in precious metals

Several more risky ways are available to invest in gold and other precious metals:

Spread betting

This strategy is betting on how much the price of gold may rise or fall in a certain period.

Buying shares in gold mining and exploration companies

Investing in companies that find and produce gold in the hope that their shares will rise on the back of increased demand.

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