Investment bank Goldman Sachs said last week that the price of gold, which has fallen by more than ten per cent in the past six months, could weaken further.
The warning came days after French bank Societe Generale put out a report called The End Of The Gold Era, predicting gold would keep sliding this year and next.
The gold price has since dived, posting a near 6 per cent decline in morning trading on Monday 15 April.
For those who still see gold as a solid long-term investment, or its fall as a buying opportunity, a gold ETF is a very popular way to invest.
Decline: Gold has dropped after a spectacular rise, but fans say it is still one for the long-term.Thousands of private investors have exposure to gold through funds such as ETFS Physical Gold.
These pool investors’ money and use it to buy real bullion, which is stored in vaults.
represent the underlying gold assets and their price varies continually to reflect the value of the gold less the fund’s administration costs.
Investors can buy or sell these shares like any other stock, hence the term exchange-traded fund or ETF. ‘Physical’ gold ETFs differ from ‘synthetic’ ones, where financial instruments are used to replicate the gold price and where no actual gold exists.
ETFS Physical Gold, established in 2007, is the most popular bullion ETF for British investors. Through it, they own £5 billion of the precious metal.
The financial crisis propelled gold rapidly higher as investors sought physical refuges for their wealth. Since then, fears over inflation resulting from money printing by central banks have helped to prop it up.
Many commentators think that when the global economy recovers strongly, the gold price will fall, but opinions remain divided.
At The Real Asset Company, a London-based firm offering individuals the chance to own bullion directly, researcher Jan Skoyles says: ‘Investors have been shocked by what has happened in Cyprus, where savers will experience losses.’
Skoyles says last month’s Budget was another blow to depositors, paving the way for more economic policies likely to stoke inflation.
Regarding inflation’s devastating impact on depositors, she adds: ‘Cash in the bank is not ‘‘risk-free’’. In fact, it could be referred to as ‘‘return-free risk’’.’
Others take the view that in an environment where investors are desperate for income, dividend-paying shares are more alluring than gold.
Respected portfolio manager James Henderson of Henderson Global Investors is one, saying: ‘Why would I invest in gold? It doesn’t grow like a good business does, and it doesn’t pay dividends. I see no appeal.’
