Gold hit new highs on Thursday, but how can you buy some?
Gold hit new highs this week in all the major currencies, poking just above $1,225 per ounce, and breaking through €800 for the first time.
Dealers are seeing very strong demand at the moment. Over the counter supplier ATS Bullion reports far more buyers than sellers, while BullionVault has seen an upsurge in new accounts.
But what's the best way to buy?
There are many options when it comes to buying the yellow stuff -- in Germany you can even buy it from a vending machine, but that doesn't appear to be available to British buyers yet.
- Buy it at the shop: The easiest way, if you live near one, is to walk into a bullion shop and buy some gold over the counter. ATS Bullion, for example, will sell units as small as a 1g bar (around £32 -- probably more appropriate as a gift than an investment), as well as coins and larger bars, from its shop on the Strand;
- Open a gold account: Some banks and other institutions will buy gold on your behalf and hold it in an account for you. This is referred to as 'unallocated gold'; legally you do not have title to the gold -- the institution takes the gold onto its balance sheet as an asset, and owes you an equivalent amount as a creditor;
- Buy gold in a vault: You can buy physical gold allocated in your name, but stored securely in a recognised bullion vault. The important point about 'allocated gold' is that you have legal title to the gold -- it does not show on the vault-owner's balance sheet. Earlier this year BullionVault was awarded the Queen's Award for Enterprise for making this market accessible to small investors;
- Exchange-traded commodities (ETCs): Similar in ways to exchange traded funds (ETFs), these allow you to buy shares in a company whose purpose is to track the price of the underlying commodity. ETFS Physical Gold (LSE: PHAU) (LSE: PHGP) -- dollars and sterling versions -- and Gold Bullion Securities (LSE: GBS), are funds that own gold bullion, as opposed to futures contracts -- you can buy shares through your broker;
- Spread betting: You can bet on the future price of gold using a spread betting account. This doesn't give you ownership of gold, but does give you exposure to the price, and may allow you to use leverage, which is not necessarily a good idea;
- Derivatives: Covered warrants are reasonably accessible to the private investor, but they are more complicated than the methods listed above. Professional investors also trade futures contract. These are all best left to the professionals, in my opinion.
If you're choosing to buy gold, the method you pick will depend to a large extend on your reasons for buying. Some people are buying simply because they expect the price to rise, and any of these methods will give exposure to that. But in the Foolish tradition, always pay attention to the costs, and in particular to the spread between buying and selling prices.
Others are buying physical gold because they don't trust the banking system. In that situation, it would make no sense to let a bank hold your gold.
Adrian Ash, at BullionVault, says the general fear of bank defaults has eased, only to be replaced by a growing fear of sovereign default -- countries unable to pay their debts, and undermining the value of their currencies. This may be why his clients choose to put 76% of of their gold in the company's Swiss vault, with only 2% in New York, and London holding 22%.
At the nutty extreme -- a total breakdown of society, fighting in the street for food, you know the sort of thing -- physical gold may be less useful than silver as a means of exchange. If fact possession of physical gold may put you at more personal risk.
As it happens, I have some exposure to gold, more for reasons of asset allocation than apocalyptic fear. It's also a small insurance policy against the effects of loose monetary policy, but of course there are other ways to achieve that. I don't have any strong views on the future direction of the gold price.
My method of choice is the ETFS Physical Gold exchange-traded commodity fund, for reasons of cost and convenience. But as always, it's horses for courses, and you may find one of the other methods suits your requirements better.
More on gold:
As stated above, Padraig has a little bit of the yellow stuff.
