The appeal of gold

I am interested in buying gold as I am attracted to its long-term appeal of security. As it is not very practical to actually buy gold bullion, what other options do I have to buy gold indirectly ? Also, how has the price of gold performed in the short term?

Gold is currently trading in the region of $380 per ounce. The price has increased by 10% this year alone after hitting a high point of $388 back in February - a level not seen since 1996.

Gold is generally regarded as a safe haven and at times of stock market turmoil for example, investors have tended to move to gold as an alternative investment. Gold is also favoured at times of war, with the Iraq conflict a good recent example where gold became very popular and the demand was reflected in the surge in the gold price.

While individual investors have tended not to invest in significant volumes, institutional investors such as banks and investment funds use gold to diversify portfolios and reduce risk.

You can physically buy gold bars and coins but this can prove expensive due to storage costs and insurance. Alternatively, you can buy an 'entitlement' to gold, i.e. gold bars are not actually set aside but instead the purchaser receives a certificate of ownership. This is the more common method of actually owning gold.

You can also trade in the gold market, by spread betting. This is a popular concept of predicting the future price of gold over a given time.

Spread betting is popular on other commodities too. For example bets are taken on the price of oil, sugar, cotton and even orange juice (in the US), as well as more common areas such as stock market indices and currencies.

You can 'spread bet' via specialist brokers - most of which offer online services with minute by minute price updates.

If this does not appeal to you, then you can of course invest in gold mining companies. Reducing your risk even further, there are investment funds that invest in mining firms. You are therefore not investing in one single company but a collection of companies that is being managed for you.

Whether you wish to physically purchase bars of gold, bet on price movements or hold units in a collective investment scheme will depend on the risk you wish to take.

Please address any Financial Questions to: Mark Hollingsworth, c/o The Sunday Times, PO Box 328, Valletta CMR 01. Alternatively, he can be contacted on 9984-2614 (office hours) or e-mail mhollingsworth@ waldonet.net.mt.

Past performance is no guide to the future and except where amounts are guaranteed the price of your investments (and the currency in which it is denominated) may fall as well as rise. Malta exchange control regulations must be observed. Your personal tax situation will depend upon residence, always consult a professional adviser. This article does not intend to give investment advice and the contents therein should not be construed as such. Readers are encouraged to seek professional advice regarding their personal financial situation.