Gold as an investment

Abstract

A review is presented of avenues in gold investment, ranging from the metal itself, through coins and jewellery to shares in exploration and production, bonds and derivatives. For gold investors the issue of ‘beta’ is important. In a gold boom, the gold asset class which performs best is the gold share sector. The question is whether an investor should pick a straight producer or an exploration hopeful. As to the metal itself, the key issues encompass dealing, holding charges and security. Other gold assets such as bonds may be too obscure and illiquid, bullion funds can be too expensive selling above net value, coins may have a numismatic value in excess of their gold value and jewellery usually has a substantial ‘added’ value. Gold derivatives provide an outlet for gearing up gold's performance but carry severe health warnings due to their volatility. As well as assessing the merits or otherwise of these various asset classes, some influences on the gold price that are critical in evaluating gold's attractions or otherwise as an investment are examined. Amongst these are the issues of central bank selling, the OTC derivatives market, gold production trends and demand growth factors. The influence of both India and China on the gold market is considered. Finally, firm conclusions are drawn as to where the gold price is going over the next couple of years and the effect this could have on the various gold investment forms considered.