|
I’m used to feeling like an
outcast among my friends. They treat my love of the yellow stuff as
some kind of quaint eccentricity. Apparently they all knew gold was
over priced and, while I may have had a bit of luck, gold’s only
really gone down since 1980.
That used to be their
spiel, but now we’re near 1980 prices again without adjusting
for inflation and suddenly I know the whereabouts of the Holy Grail.
I’ve been asked twice in
the last month for ways in which to invest in gold. It’s easy to
feel that investing in precious metals is the remit of bankers and
the super-rich but the truth is anyone can do it. There are other
ways, but not everyone wants to learn about contracts for
difference, futures and the like.
So, how does a lady in my
mum’s book club put a grand into gold?
Firstly, coins: Gold in its
age-old form. I like coins because they’re tangible. You can hold
them. A bank going bust or an electronic fraud somewhere can't take
them out of your hands. They are yours; just as Caesar had his.
In the UK today, HM Revenue
and Customs needs to be informed of single transactions in gold of
more than £5,000 or any number of transactions totalling more than
£10,000 in one year. The nature of coins means tracking them and any
related tax - Capital Gain or Inheritance - can be difficult which,
I suppose, is in the taxpayer’s favour.
Something to bear in mind
with coins is that their size, the very thing that makes them so
valuable (it’s easy to fit ten grand in your pocket) means that
securing them is fairly important! Obviously that responsibility
rests with you. The cost of insuring or storing them in a vault may
- depending on the amount you have - outweigh any benefit. In my
case, I find an old sock in the attic does the job. What if there’s
a fire? Let them cool before you pick them up. As for the notes in
your wallet, don’t bother looking for them.
Dealers are common enough to
make liquidating coins easy but obviously not as easy clicking the
“sell” button with your on-line broker. Among the well known coins,
Kruger Rands trade closest to the gold price and at the smallest
spread. There are others, but first decide what your objective is.
Some coins cost significantly more than their gold content because
they have a collector value and to score on that, you’ll need to be
sure you know what you’re doing. I know very little about what makes
a coin a collector’s item, so I stick to Krugers.
Don’t forget that coins pay
neither dividend nor interest.
Secondly: Exchange Traded
Funds - or ETFs. You can buy and sell these much like any equity,
although I’ve noticed that some on-line brokers don’t have the
facility to deal in a dollar-denominated security – as this is – on
the London market. Just check with yours. The ticker for the gold
ETF listed in London is GBS.
ETFs are highly liquid and
track the gold price almost exactly. You don't physically hold the
gold yourself - it's in the vaults of a reputable bank somewhere
under the Thames. Unlike holding coins, there is a management fee
but I treat that as a cost of insurance and liquidity that coins
don’t match. Also, like coins, this does not pay a dividend or
interest.
Finally, owning shares in
the mines. Mining companies often pay a dividend. Indeed recently,
some of the big mines have paid super-dividends due to the vast
profits they’ve made in the commodity boom over the last five years.
In this day of electronic trading, shares are easily bought and sold
and provide leverage against the gold price. By that I mean if, say,
the fixed cost to mine an ounce is $400 and its selling price $500,
the mine makes $100 or 25%. If the price moves to $600/oz, the mine
is smiling nicely on a 50% profit whereas, had you bought coins or
an ETF at $500, you’d have earned a return of 20%. This is what’s
meant when gold companies are referred to as being “high-beta”:
their price is more volatile than the market so when the gold price
goes up, they should outperform. Similarly though, if there’s a
downturn in the price, it will be exaggerated for a mine. But nobody
reading this is expecting a serious downturn for a while. Are they?
As with all companies, mines
are subject to human intervention. Strikes, mismanagement and
political actions will affect profitability. Even a roaring gold
price won't pull up a badly managed company. Over the last few years
though, a portfolio of a few blue chip mines would have served you
well.
Good luck. I don’t need to
tell you that you won’t be sorry for having a stake in gold in 2007.
|
