How to go for gold

Mar 03 2009 15:28Helena Wasserman

Johannesburg - Amid all the misery and gnashing of teeth in the investment world, there is still one merry little corner of the market.

The gold price has more than doubled in the past five years and recently broke through the level of $1 000 an ounce. While some analysts expect it to top its record of $1 030 soon and others think it might even double, it has since fallen back somewhat.

But with no sign that the markets are getting less tense - last week, the US stock market fell to its weakest levels in 12 years - gold shouldn't go out fashion soon.

Gold does well in times of uncertainty, when share prices plummet and panic is a daily occurrence. Gold gives investors the reassurance of holding something physical, which won't evaporate like so many share prices.

There are other reasons why gold is doing well.

Gold mines, particularly those in South Africa, have not been churning out the stuff at the same rate as in the past. There are concerns that supply won't keep up with demand.

The world's central banks, which own huge stockpiles of gold and have been big sellers in past years, are holding on to the yellow metal because of increased international volatility.

Shelter against weak rand

For South Africans, investing in gold (which is priced in dollars) also provides some shelter against the weakening rand.

Over recent years, the boom in Indian and Chinese economies has also created a huge demand for gold jewellery.

But not everybody is convinced that gold will continue to head north.

As China and Indian cool down along with the rest of the world, jewellery demand is decreasing.

Two other factors that traditionally boost the gold price - a weak dollar and global inflation fears - are also not featuring now.

Some analysts therefore expect the gold price to retreat once volatility has died down and markets stabilise.

One of the main drawbacks of gold for investors is that unlike shares and bank accounts, gold doesn't pay out an income.

Given its limitations, many investment experts therefore advise against investing more than 5% to 15% of your savings in gold.

Still, the benefits of gold - price stability and a safe haven in volatile times - should make it something to consider.

This doesn't necessarily give you the perfect excuse to go on a bling buying spree. Jewellery is not the ideal way to go for gold. It can be hard to sell for a profit and you need to make sure of the quality of the metal and the attractiveness of the design (read more)