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Gold Investment Demand remains historically high: New World Gold Council report

Gold Investment Demand

The World Gold Council have released their latest edition of their Gold Investment Digest. For those that aren’t aware of the World Gold Council’s website, it is a great source of statistics and research on the gold market.

Highlights of the current report are;

– The gold price continued its upward trand during Q3 2010, ending the quarter at $1,307.00/oz, 5.1% higher quarter-on-quarter

– Gold’s average volatility of 13.2% for the period was lower than the previous quarters and remained below that of equity and commodity indices

– Gold investment demand has remained robust due to concerns about further quantitative easing and very slow economic growth in the developed world. Strong jewellery consumption in regions like China, usage in technological applications and continued central bank buying have also sustained a healthy demand for gold

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– Gold Investment demand for bars and coinsduring Q3 2010, whilelower than the second quarter, remains historically high

– Demand is expected to increase in the 4th quarter with the main festive season

– Investors bought 28 tonnes of gold in ETFs bringing their holdings to record highs of 2,070 tonnes

– Net long positions in the COMEX futures market remained robust during the quarter as investors continued to see the value in the long gold trade.

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How can IFAs introduce tax free gold investments to retail customers

Need to diversify

With the traditional asset classes falling in value over the past couple of years, conversations about alternative assets have come more into focus.  With hindsight most investors wish they’d had a portfolio hedge in place, a safe haven product, an asset that has returned on average 25% per year, even in the current economic climate.

Gold continues to dominate headlines and provide astounding returns.  Now even the most unsophisticated investor is aware of gold as an asset class, and has read about its benefits as a crisis hedge, inflation protection, and diversification tool.  But few are sure how to invest in it, and even the IFA community may not be aware of some of the tax free methods of investing into the physical metal itself.


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Pension Gold

One of the most obvious tax free gold investments pension gold. Gold bullion is the only precious metal which qualifies for Self Invested Personal Pensions (SIPPs).  There was so much media attention around A-day regarding property that Pension Gold seemed to slip under the radar. The consequence is that a few years on, while many SIPPs offer property products, few offer gold bullion. The fact that investors actually buy gold bars, rather than a paper asset, provides huge comfort that there is no credit exposure whatsoever.  We offer bars denominated in 1oz or 100g sizes to provide exceptional liquidity and store them in a licensed depository where it is fully insured by Lloyds of London. Like any other SIPP qualifying asset, gold bullion receives up to 40% discount through tax relief, and enjoys the usual sheltering from Capital Gains Tax.

Insider's Guide to gold and silverPension gold can be particularly appropriate for savers entering the final phase before retirement. The current economic downturn, and subsequent plunge in pension values, has demonstrated the exposure and lack of balance many pension investors have. When these nasty shocks occur shortly before retirement, there’s usually little time to recover, and many feel forced to delay their retirement in the hope of recovering portfolio values. An allocation in physical gold acts as a hedge against such events.

Pension gold can also play a vital role in a younger, more aggressive pension portfolio. It provides balance when teamed with property structures, high yield and emerging market assets.

Tax free gold coins

Other investors are buying physical gold outside of their pension.  They are choosing to use idle bank deposit money to invest in completely tax free gold coins.  Many customers are fed up with low bank returns which are not only taxed but also exposes them to the bank failing if they have over £50,000.  All investment gold is VAT exempt, and UK bullion coins are Capital Gains Tax free too as they’re classed as legal tender.   The most popular tax-free gold coins are the 1oz Britannia or the smaller Sovereign coin. Both provide a fantastic heirloom, as well as wise investment, and some customers opt for older Sovereigns to enjoy the added historical value.  All of the Tax free gold coins trade at a premium to the same size gold bar as they not only consist of the intrinsic gold value, but also a value linked to its design, rarity, and demand. Customers obviously maintain their premium over bullion bars when they come to sell.

If customers are making a modest investment, and therefore unlikely to breach Capital Gains thresholds, then they may opt for a well known foreign coin such as the Krugerrand. These are currently trading 2-3% cheaper than the equivalent Britannia.

Investors can actually take delivery of this gold and store it in a private safe or their bank’s safe deposit facilities, or opt to use the gold dealer’s storage facilities.  The coins are a simple, understandable, tangible investment, which provide a great contrast to the many complicated structured products on the market.

Regular Tax free gold investments

For those without lump sums to invest there are also ‘drip feeding’ accounts such as our Gold Savings. This provides an alternative regular savings scheme. Instead of saving every month or quarter in paper money, a Standing Order is set up and tax free gold coins delivered on a regular basis so clients gradually build a golden nest egg. With the huge threat of inflation with record low interest rates and Quantitative Easing, gold seems to provide great wealth preservation.

We have an extensive network of IFAs who place their gold products into the UK retail market through our Gold Advisers Program.  There is a huge role to play by the IFA community, to make customers aware of the various gold products on offer and that diversification is key to securing your customers’ wealth. Gold provides a unique balance due to its low correlation with other assets and due to its nature as a physical asset versus the traditional paper assets most people own.

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Many of your client base may ask whether they’ve missed the boat with gold investment. While it is true that gold is at all time highs, it is also still a great time to start investing.  Many believe the gold price is at a tipping point and will provide 2-300% returns over the next 3-5 years.

Mining supply will be flat to negative over the next 10 years.

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That is the timescale it takes from discovery to mining, so it provides transparency for supply. Secondary supply is plummeting as the usual main central bank sellers have become net buyers for the first time ever. Their holdings are up 40% this year.

Demand for investment continues to rise as retail awareness increases and significantly pension and hedge funds have sited physical gold as an integral part of their ongoing portfolios. Oil producing nations look to preserve wealth with gold rather than dollars, and industrial demand will undoubtedly increase when the world economy does eventually pull out of the mire, due to the metal’s use in electronics.

The economic environment also remains very supportive of further price gains. Most will agree that another few years of financial pain remains with record unemployment and record Sovereign debt levels.  The Dollar looks like losing its status as the world’s reserve currency, as the BRIC economies suggest benchmarking against a basket of currencies instead.  As a safe haven asset, gold will continue to shine.

When we do emerge from recession and start to grow, there is one final phantom waiting around the corner – inflation.  With global interest rates near to zero, huge stimulus packages, and the UK’s Quantitative Easing program, the likelihood of high inflation is very apparent.  With the value paper money set to be eroded, there is only one true store of wealth – physical gold.

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Will the gold price impact the Indian festival season?

Indian Festival Season

We typically see gold sales in India peak in October and November due to the metals popularity as a gift in the marriage and Indian festival season. This period sees the festivals of Navrati, Dussehra and Diwali. Generally the price of gold pushes higher during these months and then falls back after mid-December when its deemed bad luck for Indians to marry.

However, the continuing surge in the gold price has left gold jewellery beyond the means of the average man in India. This has seen jewellery demand down 25-30% on average across the country with the South particularly badly hit with a 30-40% decline.

Wed expect with these figures from the number 1 global consumer of gold jewellery that the price of the precious metal would have fallen over recent weeks.

Insider's Guide to gold and silverAlthough gold utilization within cities has fallen back, trade officials are up beat on rural demand because a helpful monsoon season has produced jumbo crops, improved cost realisation and rises in land value will boost consumption of physical gold. In general, about 60% of physical gold purchases are from smaller towns and villages.


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With the Indian middle classes expanding, demand for non jewellery gold in the shape of investment coins and bars has in fact risen.

I think the general resilience of the gold price demonstrates the depth of gold demand that has now developed, and it shows that the price is less reliant on the Indian festival season.

My advice is to look at the medium term picture for gold which is very supportive of further significant gains due to the economic and political environment. This should mould your decision on investment rather than the short term picture. Clearly if you can buy on a dip day that always helps.

Happy festival season!

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Gold investment still not part of the average portfolio

Over the past few months we’ve seen the price of gold head higher. Just recently many investment analysts have predicted the price to continue its meteoric rise with $1,500/oz sited by year end and $2,000/oz within the next 18 months. Over the past decade gold has returned an average of over 25% a year. Yet, still only a small percentage of investors own physical gold, especially in the UK.

Total net investment in gold from start of 2010 through to July 31st was $2.7 billion. Yet, in the course of the same period, investors poured $22 billion into emerging markets mutual funds and $155 billion into bond funds.  In comparison to these numbers, the total amount invested into gold is negligible.

Portfolio mindset

So why are so many people ignoring the asset as part of their portfolio?

I certainly don’t think it’s due to a lack of awareness of gold. The press coverage over the past few years has been phenomenal. Most people are now aware that gold can be bought as an investment, and that it performs well as a safe haven asset. So surely that’s half the job done?


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The main barrier preventing the average investor buying gold is mindset.  Many modest

Insider's Guide to gold and silverinvestors and savers still perceive gold as being elitist and out of their reach.  They don’t realise that you can buy a Sovereign coin for just over £200 or tiny gold bars for £50 or less!  Certainly the US retail market is at least 10 years ahead of the UK market in terms of the average person owning some gold as part of their portfolio. It’s only a matter of time before we catch up. Only a small fraction of UK investors have considered alternative assets at all. Most still stick to traditional paper assets such as stocks, bonds and cash. However, with huge losses from these assets over the past few years more people are now opening their eyes to the world of alternatives, including gold. More are now realising that a true balanced portfolio needs to include a wider range of assets.  Traditional currencies such as the Dollar, Sterling and the Euro are now threatened, so we are gradually seeing more savers using gold as a store of wealth rather than leaving all their liquid assets in a Sterling savings account.  But these are still in the minority, and most savers to still accept ISAs and savings accounts as the only options.

How to buy gold

The next mental block is a lack of knowledge in what to buy, how to buy gold, and where from.  While gold has been around for centuries, it remains a ‘new’ asset class to many. The first question novice investors ask us is should they buy gold coins, bars or mining stocks? The options are endless and many feel they don’t know who to ask to get the answers.

While awareness of gold in general is high, many of the people we speak to aren’t aware that certain coins are totally tax free in the UK, or that you can get 40% discount off the price of gold bars as part of a UK pension.  That’s not a surprise when so few Independent Financial Advisers (IFAs) discuss alternative assets with their clients. Many of the IFAs themselves weren’t aware that gold bullion could be bought with a pension.  This is part of the reason why we started the Gold Adviser’s Program.

When the pension parameters changed in the UK to allow some alternative investments into Self Invested Personal pensions (SIPPs), most of the press focus was on property. At the time buy-to-let properties were the thing to be in, with many modest investors becoming landlords. When residential property was widely touted to be included as permissible SIPP assets press coverage could talk of nothing else. This would mean investors could essentially buy a £100,000 flat at £60,000 once tax relief is factored in. At the last minute the Government performed a U-turn and only allowed commercial property with a SIPP. However by this stage gold had slipped under the press radar as the only commodity permitted into a SIPP. So pension gold really hasn’t been promoted in the UK. When our customers are made aware of the possibility they love the idea.

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New processes

It’s also true that the average investor doesn’t know the buying process. How do I pay? Where do I store the gold? How do I know it’s real. These are some of the most common questions we receive. If you have the support and expertise of a good gold dealer then these sort of questions are easily overcome.  The buying process is as simple for gold as buying anything and once customers buy once they realise there is nothing radical about the investment process.  Finally, it’s human nature that investors want to buy at the lowest price and sell at the highest. This is the main investment strategy afterall. So many are put off that gold is at all time highs. They feel they have missed the boat and are unsure of the best timing to add gold to their portfolio. As I mentioned at the beginning most experts feel gold has a long way to run yet and starting a relationship with a reputable gold dealer today will help you select the best buying opportunities and get the ball rolling with the new world of physical gold.

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Will high inflation affect me?

More money printing on the cards

There has been much talk recently of the Bank of England printing more money in an attempt to stoke the flames of recovery.  The British Chambers of Commerce have put out a plea for the Bank to inject a further £50b into their Quantitative Easing (QE) program.

This program already stands at £200b, and many speculate that this size will grow considerably over the coming year as the Bank seeks ways to fend off a double dip.  With the UK debt being the number one priority we will all see our tax bills rise and Government handouts dwindle as George Osborne attempts to rein in spending.

So what does this mean to the average man in the street? Surely any cash injections will be beneficial and help keep the economy bubbling while we tackle the huge debt mountain.


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Can lead to high inflation

In the short term, the QE program may well be disguising the depth of the problems we face. I see it as a sticky plaster over the gaping wound which our excessive borrowing has inflicted.  The main problem in the medium term of simply printing more currency is high inflation.

By injecting more money into the economy, we are helping devalue our own currency. The last country to use QE in a major way was Zimbabwe and they now have inflation well over 1 million percent! This means its people struggle to carry enough currency to even pay for a loaf of bread.

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The danger in the UK is the combination of the QE with the record low interest rates and already simmering inflation levels. With inflation already over 3% during the worst economic downturn of our generation, just imagine where it will be once they QE kicks in and we start to emerge from depression.  The difficulty is the lack of control we have over cost push inflation. With populations and consumption increasing, natural resources come under further pressure. Commodity prices are helping push up prices of goods and stoke the flames of inflation.

With savings rates at banks usually below 1%, the value of your money is diminishing day by day. If inflation hits double figures, the pace at which your savings depreciate will increase considerably.  Many people will see their hard earned money and kid’s inheritance being able to buy less and less.

Protect your wealth with gold

Many of these savers are now moving some of their Sterling based savings sideways into gold.  This commodity has always historically been seen as a great hedge against inflation, and unlike Sterling you cannot simply print more of it! As a precious metal it needs to be discovered and mined and World Gold Council stats show that new discoveries and supply are low, helping to push its value higher.

Only time will tell if we see further Quantitative Easing and high inflation in double digits, but it makes sense to prepare for the possibility considering all the factors point in that direction.

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7 reasons Soros was right about the gold price

Soros the conductor

It’s a great power to have as an investor when the market reacts to your every word. George Soros is one of those investors, and when he recently talked down gold as a bubble the market took note.

However, reading between the lines Soros actually sees the gold price rising significantly over the foreseeable future, and this was supported by him increasing his gold holdings after his comments, albeit at a new slightly lower price! Maybe the bubble will burst one day but not in the next few years at least.

So why was Soros right to increase his gold holdings and have you missed the boat with gold at record highs?

1.       Performing as expected

The fact that gold is continuing to perform well is reassuring to investors. As the ultimate safe haven asset it should be performing well in the worst economic crisis in living history. If gold had fallen 30% in the past year I wouldn’t see this as a buying opportunity, I’d be worried why it wasn’t ‘doing what it says on the tin’.


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2.       Perfect global conditions for gold

If anything the global economic environment for gold investment is even stronger now than it was 2 years ago.  We are continuing to see bank closures and restricted lending. This year has seen the shift from personal debt to Sovereign debt. Countries such as Greece, Spain, Portugal and Ireland are struggling to repay debts and the very existence of the Euro is under threat. As faith in traditional currencies diminishes, more investors are turning to gold as an alternative store of wealth.

3.       Dealing with debt

You have to ask yourself the honest question – are we likely to see recovery any time soon? In the UK, where we have the instability of the first coalition Government since 1945, tax hikes and spending cuts will undoubtedly see a squeeze on disposable income. The abolition of child benefit for higher rate tax payers will hit the middle classes. The healing process is a slow one which is impossible without any pain. The interest on the UK’s debt alone amounts to £75b/year, more than we spend on defence and education combined.

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4.       Terror threat

Continued political unrest has uncovered terrorist threats targeting atrocities in the UK, France and Germany. North Korea has become a possible nuclear threat, and Middle Eastern tensions continue. It only takes one of these attempts of terror to succeed and equity markets around the world will plunge, sending gold higher.

5.       No alternative

The alternatives to gold are poor right now.  While many people like to hold their wealth in cash savings during economic downturns, the situation we find ourselves in means we receive far less in interest than the current inflation rate. A saver lucky to receive over 1% with their bank will find their money losing over 2% in value once inflation is considered. Many of these savers are now turning to gold so not all their liquid assets are held in Sterling, further supporting the gold price. Equity markets are unlikely to provide sustained returns with less money in consumers’ pockets to spend and they remain vulnerable to a double dip recession or terror attack. The risk of bonds not repaying capital (or even their coupon) has increased even with Sovereign debt bonds.

6.       Inflation

There remains a major threat of high inflation once the global economy does start to recover.  It is universally agreed that the combination of record low interest rates and huge stimulus programs is likely to lead to high inflation. In the UK, we have already injected £200b of Quantitative Easing (QE) into the economy with more likely over the coming months.  This strategy has never been attempted in the UK so the outcome is unknown. Zimbabwe was the last nation to use QE and we all know where their inflation is!  Gold has long been seen as a great way of protecting against inflation and currency weakness as it’s an independent tangible asset.

7.       Supply/demand

Finally, one of the main forces which drives the price of an asset is supply and demand. This is where gold comes into its own. Demand is at unprecedented levels with new buyers discovering the asset class all the time. In the last couple of years pension, insurance and hedge funds have started buying physical gold. China has lifted restrictions on domestic investors to encourage more of the largest population on earth to buy gold. And the central banks themselves are looking to aggressively increase their holdings of gold to balance their reserves and reduce exposure to the Dollar.

Insider's Guide to gold and silverSupply on the other hand is flat to negative. The latest stats can be found on the World Gold Council’s website and there have been no major discoveries of gold over the past few years.  It takes around 7-10 years from discovering gold to producing investment gold due to the bureaucracy and infrastructure needs. This means we enjoy a window into the next 7-10 years supply and right now there is no significant supply coming into the market.

So while it would have been perfect to buy gold 10 years ago, it’s still a great time to buy. As an investor, it’s all about having portfolio balance and gold provides a unique balance and protection in these turbulent times. That’s the same for experts like Soros, and the man on the street.

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Gold is king, not cash

Is cash still king?

Despite most people thinking banks are through the worst of the credit crisis, 279 banks have collapsed since 25th September 2008. That was the day Washington Mutual become the largest bank failure since records began. In fact bank collapses over the past two years eclipsed the previous six year period when only 35 banks were wiped out.

What can we learn from this? Well firstly we should realise that the banking crisis is far from over. While many of the UK high Street banks have been rescued by the UK Government, the Treasury are now under the rating agency spotlight to reduce the national debt. Any future cash injections will be far less forthcoming. So next time one of the lenders goes cap in hand for cash they may have to look elsewhere, or learn to become self sufficient.


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During previous economic downturns the traditional stance was that cash was king. If stock markets and property prices were choppy, simply keep the money in the bank.  There was never any doubt over the safety of that money. However the world we live in has changed. As a UK saver you are now only protected for £50k in each bank. If the bank goes under, you could lose money. A ridiculous notion 10 years ago but very realistic now. Indeed for those who invested into Icesave a couple of years back, they eventually got lucky and were repaid by the UK Government. The Treasury were convinced they’d be reimbursed by the Icelandic Government but the money never came. Such a future failure may this time fall on deaf ears.

PHYS01_Animated_Gif_2_MPUSecondly due to the squeeze on the money markets and record low interest rates, returns for UK savers are around 1% or less. That is then taxed at their prevailing rate. When inflation of over 3% is taken into consideration you are actually making a negative return for the risk you hold that the bank may not survive to repay your capital!

That’s why we are now hearing more and more that cash is no longer king, gold is the new king.

One way of avoiding exposure to the banks, to Sterling, and to any counterparty at all is to move some of your savings sideways into physical gold. We’ve been trained throughout our lives to put money away in the bank but with changing times comes the need for changing strategies. There’s simply no need to hold all your liquid assets in Sterling based bank accounts any more.

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A Gold reminder of the terror threat to our lives

Ongoing Terror Threat

This week intelligence officials intercepted  a credible Islamist-linked terror threat to the UK and mainland Europe.  The style of attacks would have been similar to the co-ordinated multi-hit attack on Mumbai where 170 people died two years ago. Indeed the Eiffel Tower has been evacuated twice in the past fortnight due to terror threats.

This news serves as a timely reminder that we live in turbulent political times. As well as the fear this strikes to personal safety it also has a major influence on the investment community.  It would only take one successful attack of this magnitude, whether it be from Islamic terrorists or indeed from North Korea’s nuclear threat, to send the already fragile markets into a tailspin.

Anyone with investments in many of the traditional assets such as equities,

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bonds or even property would no doubt suffer huge loses as the markets respond to a major terror attack. Recovery in such a weak economic global economy would prove slow at best.

With a terror threat still very real, the case for owning physical gold in your portfolio is dramatically strengthened. As the ultimate safe haven asset gold provides the essential portfolio insurance against such market events.   When terror triggers equities to drop in value investors flock to safety, pushing the gold price upwards.

So many investors think of the gold price rising in economic downturns but forget how well it also performs during geo-political unrest. Most significantly it is the terror threat which is most unpredictable and can catch investors unawares.  By owning gold in its physical form (through gold coins or bars) the investor has no counterparty risk whatsoever so owns the ultimate security.

While few people would consider not having house or car insurance, few of us have in place ‘portfolio insurance’, leaving themselves vulnerable to unexpected market downturns.  This latest ‘near miss’ acts as a timely reminder to act now and move some liquid assets into physical gold before it is too late. Remember the old adage, ‘You don’t wait to buy gold, you buy gold and wait’.