Whilst some investors have returned to equity markets over the past year or so, there are still many that had favoured the 'safe haven' of government-issued bonds. Quite often these bonds have offered attractive returns as governments look to raise much needed funds. The recent inability of Greece to honour its own issue of bonds has embedded fear of contagion across European, if not global markets, meaning that 'safe havens' are in short supply, which is great news for gold both now and into the future.

 

The inability of a single country (particularly one that had been accepted into the European Union) to honour its debts triggered something of a rally to 'physical assets'. Being the most popular of physical assets, the price of gold promptly hit record highs last week, almost immediately after Greece's financial affairs were made public. Japanese yen-priced gold hit its highest in 27 years, according to Reuters data, while gold priced in Canadian and Australian dollars and South African rand reached its highest in five months.

 

Gold is also proving attractive not only because of the above. Now more than ever, gold is facing something of a 'supply and demand' crisis. Whilst new, emerging market economies demand more and more gold, production quotas (imposed by governments rich with plentiful gold resources) mean that gold production is actually gradually reducing. The fact that 20% of all gold currently mined is now held as assets within 'physical gold funds' (as opposed to just 8% in 2007) illustrates the popularity of the metal as an investment. In fact, gold bought for investment into physical gold funds exceeded jewellery fabrication demand for the first time since the 1980s recently.

 

Furthermore, many of the major asset management companies continue to launch their own gold funds, suggesting that the experts see real value into the future. Additionally, many governments are actively adding to their gold reserves as opposed to purchasing other currencies, such is the fear of fluctuation and worse still, default.

 

There are three distinct ways of accessing gold as an investment: 1. Simply buy gold bullion, 2. Invest in a fund which buys & sells 'physical' gold bullion, utilising the skills of precious metal experts, or 3. Invest in a fund which holds shares in companies with gold 'links' (commonly shares of companies involved in the mining, processing and dealing of gold). It is the second of the three options that is currently proving extremely popular, as unlike the third option, such funds look to track the movement of the gold price rather than be correlated to the success of the company shares held in the fund (which may be affected by shareholder votes, dividend payments etc), as in option three. Furthermore, investing in a unitised physical gold fund provides a fully liquid means of gaining gold exposure, unlike option one.

 

Angus Murray, CEO of Castlestone Management , managers of the Hansard Aliquot Gold Bullion fund (MC85, available in HIL) commented "The recent economic events in Europe ("Sovereign risk") highlight the continued need to own an asset that acts as an insurance policy in a portfolio. Gold has shown once again to have this very necessary quality. Additionally the only way it seems these economic issues will be resolved is by quantitative easing, which inevitably leads to the devaluation of money. As we have seen over the last decade (1999-2009) gold is one of the only liquid assets that protects against the decline in the value of money".