How to invest in gold

There is an increasingly wide range of methods available to investors wanting to buy gold, or gain exposure to gold price movements. From gold coins to complex structured financial products, the most appropriate way will depend on the requirements and outlook of the individual investor.

Coins and small bars

Exchange-traded gold

Gold accounts

Gold certificates

Gold orientated funds

Structured products

The distinction between the purchase of physical gold and gaining an exposure to movements in the gold price is not always clear, especially since it has always been possible to invest in bullion without actually taking physical delivery.
If you are thinking about investing gold, it is worth giving the same consideration to your purchase as you would to any other investment. The following list of questions is provided as a guide to help you decide on the channel or channels that would be most appropriate for you.

• Why have you decided to buy gold?
• Do you want a real asset that you can have physically available at all times or do you simply want exposure to the gold price?
• Will you want to have the gold delivered to you or would you prefer to have it stored in a vault?
• Do you have information about all the costs that may be involved? These may include taxes, commissions, premiums, storage or insurance.
• Is the counterparty (the person or company from or through whom you will be making the purchase) reliable and trustworthy?
• How does gold fit in with any other investments you may have?

Why gold?

Gold has attracted investors throughout the centuries, protecting their wealth and providing a 'safe haven' in troubled or uncertain times. This appeal remains compelling for modern investors, although there are also a number of other reasons that underpin the widespread renewal of investor interest in gold.

Safe haven

In volatile and uncertain times, there is typically a 'flight to quality' as investors seek to protect their capital by moving it into assets considered to be safer stores of value. Gold is among a handful of financial assets that do not rely on an issuer's promise to pay, offering refuge from default risk. It provides insurance against extreme movements that often occur in the value of traditional asset classes in unsettled times.

Portfolio diversification

Most investment portfolios are invested primarily in traditional financial assets such as stocks and bonds. The reason for holding diverse investments is to protect the portfolio against fluctuations in the value of any single asset or group of assets that react in a common fashion. Portfolios containing gold are generally more robust and less volatile than those that do not.

Inflation hedge

Market cycles may come and go, but - over the long term - gold keeps its purchasing power. Its value, in terms of the real goods and services that it can buy, has remained remarkably stable. In contrast, the purchasing power of many currencies has generally declined due to the impact of rising prices for goods and services. As a result, gold is often bought to counter the effects of inflation and currency fluctuations.

Dollar hedge

Gold is often used as an effective hedge against fluctuations in the US dollar, the world's main trading currency. If the dollar appreciates, the dollar gold price falls, while a fall in the dollar relative to the other main currencies produces a rise in the gold price. While this may also be true of other assets, gold has consistently proved among the most effective in protecting against dollar weakness.

Risk management

On the whole, gold is significantly less volatile than most commodities and many equity indices. In this respect it tends to behave more like a currency. Including assets with low volatility in a portfolio will help to reduce overall risk, with a beneficial effect on expected returns. Risk factors that may affect the gold price are quite different in nature from those that affect other assets.

Demand and supply

As is true of all asset prices, gold's price moves in response to the changing balance between supply and demand. Mine production is relatively inelastic due to the long lead times that exist in gold mining, which explains why the rally in the gold price since 2001 has still not engendered an increase in production levels. Meanwhile, demand has shown sustained growth, due at least in part to rising income levels in gold's key markets. This has created the foundation for the most positive outlook the precious metal has known for a quarter of a century.

Investing in gold

For thousands of years, gold has been valued as a global currency, a commodity, an investment and simply an object of beauty. As financial markets developed rapidly during the 1980s and 1990s, gold receded into the background and many investors lost touch with this asset of last resort. Recent years have seen a striking increase in investor interest in gold. While a sustained price rally, underpinned by the fact that demand consistently outstrips supply, is clearly a positive factor in this resurgence, there are many reasons why people and institutions around the world are once again investing in gold. This website provides you with the background to these reasons and describes the defining characteristics of the gold market from an investor's point of view.

Market Fundamentals

Gold's extensive appeal and functionality, including its characteristics as an investment vehicle, are underpinned by the supply and demand dynamics of the gold market.
For more on the fundamental structure of the gold market »

World Gold Council Investment Research

The World Gold Council is an international not-for-profit organisation. Head-quartered in London, we have regional offices in India, China, Japan, the Middle East, Turkey and North America. Our investment research programme provides investors around the world with key information about gold.This includes the publication of a wide range of research papers - by acknowledged academics and our own in-house experts alike - looking at gold's investment characteristics, as well as a wealth of information on the structure of the market, demand and supply flows and regular updates on gold market statistics.

Gold investment on the rise in Pakistan

Gold investment is undergoing a boom in Pakistan, with bullion dealers reporting a 25 to 30 per cent increase in business over the last few months, according to reports.

Saeed Mazhar Ali, chairman of the All Pakistan Gem and Jewellers Merchants Association, told news service Dawn that gold bars were experiencing the highest demand from investors, with gold coins also proving popular.

He added that many people are choosing to convert their savings into gold to guard against turbulence and uncertainty in global markets.

Meanwhile, Haji Haroon Rashid Chand, president of the Karachi Saraf and Jewellers Group, said investment in gold has increased by a quarter as seasoned investors are joined by families looking to buy their first gold bars.

Samir Ahmed, chief executive of the National Commodity Exchange, noted that investment accounts for around 20 per cent of Pakistan's gold demand. Another 70 per cent is used in jewellery making, while ten per cent goes towards industrial and medical uses.

Earlier this month, Pakistan's neighbour India bought 200 tonnes of gold under the International Monetary Fund's limited gold sales programme.

Analysts including Madhusudan Kela of Reliance Mutual Fund backed the move, saying gold is a "good source of investment".

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Gold soars to new peak of Rs32,572

KARACHI: The 10-gram gold price on the local bullion market touched record Rs32,572 on Wednesday in the backdrop of persistent increase in international price of the yellow metal. The one tola rate also hit a new peak of Rs38,000.

On Tuesday the gold was trading at Rs32,271 per 10-gram and Rs37,650 per tola (11.666 grams).The international gold rate on Wednesday soared to an all-time high of $1,182 per ounce from $1,171 on Tuesday and it was expected the rising price trend may continue to persist amid sharp increase in demand by investors and central banks of some countries. Besides, dollar weakness had also lured many investors towards gold.In Pakistan, the ongoing marriage season will pick up pace after Eidul Azha. Consumers who try to purchase gold jewellery on spot rather going for advance booking are the worst-hit in view of surging prices.President All Karachi Saraf and Jewellers Group Haji Haroon Rashid Chand said that jewellery sales had dipped to 20-25 per cent these days as majority of the people could not afford high prices and prefer bringing old jewellery sets for remaking. ‘The demand of artificial jewellery is also rising across the country,’ he added.After a gap of at least 12 months, he claimed that gold price in the country was Rs200 per tola higher than Dubai. People have already become aware for investing in the yellow metal after losing hope in stocks, property, dollar and other investment avenues. People are buying gold bars as per their capacity, he said.

Export of Gold Jewellery and Precious and Semi-Precious Stones

(Value in Dollars)

Year	Jewellery	Precious and    Semi-Precious Stones	Total
1995-96	6,459,000	2,644,000	9,103,000
1996-97	4,695,000	4,412,000	9,107,000
1997-98	4,347,000	5,888,000	10,235,000
July-Sep. ‘97	892,000	1,247,000	2,139,000
July-Sep. ‘98	1,931,000	627,000	2,558,000

Source: Export Promotion Bureau

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Ten Largest Gold Consumer Markets In 1997

Country	Demand
India	737 tonnes
USA	362 tonnes
China	214 tonnes
Turkey	202 tonnes
S. Arabia	199 tonnes
Gulf States	142 tonnes
Taiwan	142 tonnes
S. Korea	114 tonnes
Italy	107.7 tonnes
Japan	107.1 tonnes

Source: World Gold Council

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Use of Imported Bullion In Pakistan (1998)

Demand	Tonnage
Jewellery	85
Bars	2
Coins	1
Hoarding	6
Others	3
Total	97 tonnes

Source: World Gold Council (Estimated Figures)

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International Gold Prices During last seven years

Year Price ($ per ounce)
1992	343.45
1993	359.18
1994	384.14
1995	384.08
1996	387.87
1997	331.26

Quarter-wise Changes in Gold Prices

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Quarter	Price ($ per ounce)
95-4	385.12
96-1	400.13
96-2	390.05
96-3	384.62
96-4	376.47
97-1	351.28
97-2	343.07
97-3	323.66
97-4	307.72
98-1	294.18
98-2	299.78
98-3	288.64