Investing in gold

The asset that shines in troubled times

John Stepek

13 October 2007

John Stepek says the price of gold is a gauge of investment fear — and there’s a lot of fear around right now

A more convenient way to profit from the rising attractiveness of gold is to buy into one of the several London Stock Exchange-listed funds that track the gold price. The good news is that you can even pop one of these funds – the ETF Securities Physical Gold fund, London-listed under the ticker code PHAU – in your tax-efficient Isa account, thus protecting any capital gains from the Inland Revenue‘s clutches. For more information, see www.etfsecurities.com.

And don’t worry about the fact that gold is priced in dollars. The US currency is weak, and likely to get weaker, but as the dollar weakens, gold tends to strengthen proportionately, so any fall in the dollar is offset. Secondly, as the chart shows, while gold has advanced 130 per cent in the last five years against the dollar, it‘s also managed a more-than-respectable 76 per cent against the pound over the same period.

Lastly, our own currency hasn‘t got much going for it either. It may not yet be as sickly as the dollar, but once house prices start to fall nationwide and with the future of interest rates less certain, sterling might just stop looking so attractive to foreign traders. HSBC reckons the pound could fall to as low as $1.76 within the next 18 months. That of course, would be good news for anyone who bought gold now, while a pound still fetches more than two US dollars.

John Stepek is deputy editor of MoneyWeek.